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What is the nature of profit and loss a/c ?

21 March 2021

As per golden rules nature of P&La/c is nominal a/c but as per modern(or) American approach what is the nature of P&La/c ?

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CA. Sourav Sarkar (Chartered Accountant ) (24588 Points)
Replied 21 March 2021

American Approach or the Modern Approach
Under this approach, we divide the transactions into the following five categories:

Transactions relating the owner, e.g. Capital and drawings. These are in the nature of Personal Accounts.

Transactions relating to the other liabilities, e.g. Suppliers of goods. These are also usually in the nature of Personal Accounts.

Asset-related transactions, e.g. land, building, plant, and machinery, cash, bank, stock, bills receivable, etc. These are in the nature of Real Accounts.

Transactions relating to the expenses, e.g. salary, wages, rent, commission, freight, cartage, etc. These are in the nature of Nominal Accounts.

Transactions relating to the revenues or incomes, e.g. interest, dividend, sale of goods, etc. These are also in the nature of Nominal Accounts.