Why prepare Profit and Loss Account in Final Account

Profit and loss account is prepared to compute the net profit of the business. There are certain items of income and expenses of the business which must be taken into consideration for calculating net profit of the business. These are of indirect nature that is concerning the whole business and relating to various activities which are done by the business for the purpose of making the goods available to the consumers. Indirect expenses may be selling and distribution expenses, management expenses financial expenses extraordinary losses and expenses to maintain the assets into working order
Indirect expenses to be shown on the debit side of profit and loss accounts can also be divided into two parts

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1. Operating expenses: are those expenses which are incurred in a concern to run the business efficiently and smoothly. Expenses incurred on administration, selling and distribution comes under the operating expenses
2. Non Operating expenses: are those expenses which are not required to be incurred for efficient and smooth operation of the business but still shown on the debit side of the profit and loss account. These include loss on the sale of fixed assets, writing off tangible assets and intangible assets etc.