Those expense which are related to business are Direct Expenses
All others are Indirect Expenses .
For example
For a factory , salary paid to workers is Direct Expense but salary paid to accountant is an Indirect Expense
(as workers are directly used in manufacturing process)
But for a CA Firm , salary paid to accountant is an direct expense (as accountant are directly used in accounting process)
Q1
Suppose a Chemist Shop purchases Medicines for 300000
It also pays 20000 freight to truck operator who brings the medicines
It sells the Same for 400000
Calculate Profit and Loss
View answer
Make Profit and Loss in this Case
| PROFIT AND LOSS ACCOUNT | |||
| Expenses | Amount | Income | Amount |
| Purchases | 300000 | Sales | 400000 |
| Freight | 20000 | ||
| Profit | 80000 | ||
| Total | 400000 | Total | 400000 |
Q2
Suppose a Factory purchased Plastic for Rs 100000
It paid 30000 Salary to Labour who converted the same into Plastic Bottles
It also paid 10000 salary to accountant for making books of accounts
It sold Plastic Bottles for Rs 170000
View answer
Calculate Profit and Loss
|
PROFIT AND LOSS ACCOUNT |
|||
| Expenses | Amount | Income | Amount |
| Purchases | 100000 | Sales | 170000 |
| Salary Labour | 30000 | ||
| Salary Accountant | 10000 | ||
| Profit | 30000 | ||
| Total | 170000 | Total | 170000 |
Prepare Trading and P&L in this Case
| TRADING AND P&L ACCOUNT | |||
| Expenses | Amount | Income | Amount |
| Purchases | 100000 | Sales | 170000 |
| Direct Expenses | |||
| Salary Labour | 30000 | ||
| Gross Profit | 40000 | ||
| Total | 170000 | Total | 170000 |
| Indirect Expenses | By Gross Profit | 40000 | |
| Salary Accountant | 10000 | ||
| Net Profit | 30000 | ||
| 40000 | 40000 | ||
Difference between Direct and Indirect Expenses
| Direct Expenses | Indirect Expenses | ||
| Those expenese which are part of main business model are called Direct Expenses.These are the expenses without which we cannot do business | Those expenses are extra business expenditure,without these expenses also,business can be run | ||
| They are shown in Trading Account | They are shown in Profit and Loss Account | ||
| Examples of Direct Expenes | Examplesof Indirect Expenses |
Q 3
View answer
Make Trading and Profit and Loss Account
View answer
Q - 4
Resolve Q3 assuming there is
| Opening Stock | 50000 |
| Closing Stock | 40000 |
View answer
Q 5 -
Suppose a person has Purchase and Sales of 60000 and 70000
He took a loan from bank of 100000@8% per annum
He gave loan to his friend whole 100000@ 9% per annum
Calculate Profit and Loss
View answer
| Loan taken | Interest 8% |
| 100000 | 8000 |
| Loan given | Interest 9% |
| 100000 | 9000 |