Multiple choice general knowledge

Excess of Profit and Loss A/c is treated as what for the business?

  1. Expense

  2. Asset

  3. Nothing, it just adds to the cash balance

  4. Liability
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When Profit and Loss Account shows a credit balance (excess), it represents accumulated profits that belong to the owners/shareholders. From the business entity perspective, this is a liability because the business owes these profits to its owners. It's not an expense (which reduces profit), an asset, or simply cash.

Keep practicing — related questions