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Because profit is earned on the capital invested which is not the company's money. Capital is also like a liability and the profit should actually be given to the owner and the money is still there with the company so it is again a Liability. For the company to pay the profit which is a return on the capital invested by the owner.
OR
The profit or net income belongs to the owner of a sole proprietorship or to the stockholders of a corporation. The owner's or stockholders' equity is reported on the credit side of the balance sheet. Recall that the balance sheet reflects the accounting equation, Assets = Liabilities + Owner's Equity.
The net balance of Profit shown on the liability side of the B/S and
Loss shown on the asset side of the B/S of the company.
The owner of the profits are the shareholders and not the company hence it is the liability for the company (which is the legal entity) and have to return the capital + profits to the owners.
Liability is a present obligation of an organization, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Equity is the residual interest in the asset of the entity after deducting all its liabilities. Profit is the part of equity when increases (credit), denotes increase in the resources (assets) while liability inreases (credit), denotes increase in the obligation of an organization. Rules of debit and credit are same for boht liability and equity but profit can not be recorded as liability.
Only if Accrued dividends
A net loss or profit for the period/year is part of retained earnings (accummulated losses), shown under owners' equity in the balance sheet. Of course, owners' equity is equal to total assets minus liabilities. Therefore, proft or loss for the period/year is not a liability but a return on tne net owners' investment-i.e. equity. True, companies show distributable profit under liabilities after appropriatting the net profit for the period /year. However, as said before, it is the return on the owners' investment..
Profit and Loss a/c balance shown on credit side of Balance sheet is a part of Retained Earnings. According to Seperate Entity Concept in Accounting Principles, Business and it's owner are different not one and the same. Capital is shown as liability because of this principle. Similarly Profit generated from business is a property of owner or payable to owner, (Proprietor or Shareholders) by the business, when he requires so. So it is shown in liability side.
it is not liability but its a part of owners equity in liability side
No, it will be part of equity
Business and the owner of the business are two different entities. Suppose you start a business (ABC Company) by investing $100,000. Now whatever you have invested in ABC Company is a liability for ABC Company. Since ABC Company and you (its Owner in simplest term) are two different entities, ABC Company now ows $100,000 to you. When there is a profit out of the business of the ABC Company, ABC Company is again liable to pay you that profit like the capita initially invested. So any profit increases the liability of the business towards its owner.
