Trading Profit and Loss

Account

Sreejith S

Sreejith S Fims 2008

 Income Statement
• Statement showing the revenues,
expenses
• To know the Income generated in a period
• It depicts a business entity's financial
performance due to operations as well as
other activities

Sreejith S Fims 2008

 Income Statement

• Trading Account
• Profit and Loss account

Sreejith S Fims 2008

 Trading account

• First section of Income Statement

• Find out the Gross profit

Sreejith S Fims 2008

 Gross Profit

• It is the profitability of the goods bought or

manufactured, sold by the firm
• Sales – Cost of Goods sold

Sreejith S Fims 2008

 Cost of Goods Sold

• Opening Stock +
Purchases -
Closing Stock

Sreejith S Fims 2008

 Trading Account for the year ended 31 st Dec
Particulars Amount Particulars Amount
To opening stock Xxxx By Sales Xxx
To purchase Xxxx By Closing Stock Xxx
To Wages Xxx
To Carriage inwards Xxxx
To Gross Profit xxxx

xxxxxx xxxxx

By Gross profit xxxx

Sreejith S Fims 2008

 Opening Stock
• remained unsold stock at the end of
previous year.
• brought into books with the help of
opening entry
• in the first year of a business there will be
no opening stock

Sreejith S Fims 2008

 Purchases

• total purchases i.e. cash plus credit

purchases
• Any return outwards (purchases return)
should be deducted out of purchases

Sreejith S Fims 2008

 Buying Expenses

• All expenses relating to purchase of goods

are also debited in the trading account
• carriage inwards freight, duty, clearing
charges, excise duty, import duty, etc

Sreejith S Fims 2008

 Manufacturing Expenses
• Such expenses are incurred by
businessmen to manufacture or to render
the goods in saleable condition
• motive power, gas fuel, stores, royalties,
factory expenses, foreman and
supervisor's salary etc.

Sreejith S Fims 2008

 Sales.

• Sales mean total sales i.e. cash plus credit

sales. If there are any sales returns, these
should be deducted from sales.

Sreejith S Fims 2008

 Closing Stock

• It is the value of stock lying unsold in the

godown or shop on the last date of
accounting period.

Sreejith S Fims 2008

 Prepare a Trading Account
• Opening Stock 100000
• Purchases 672000
• Carriage Inwards 30000
• Wages 50000
• Sales 1100000
• Returns inwards 100000
• Return outwards 72000
• Closing Stock 200000
Sreejith S Fims 2008
 Profit and Loss Account
• To find out the Net profit
• Difference between Operating expenses
and income

Sreejith S Fims 2008

 Profit and Loss account for the year ended 31st march 2008
Particulars Amount Particulars Amount
To salaries Xxxx By Gross profit Xxx
To carriage outwards By Discount received
Xxxx Xxx
To Interest on loan By Commission received
To Bad debts Xxx By Rent received xxx
To Advertising Xxxx By Interest received xxx
To Export Duty xxxx By Income from xxx
To Packages investments
xxxx By Dividend received
xxx
To Rent
To Commission Paid xxxx xxx
To Depreciation xxx xxx
xxx xxx
To net profit transferred
to capital account xxxx

xxxx xxxxx

Sreejith S Fims 2008

 Indirect Expenses
• Selling and distribution expenses
• Administrative Expenses
• Financial Expenses
• Maintenance, depreciations and
Provisions etc.

Sreejith S Fims 2008

 Selling and Distribution Exp
• a) Salesmen's salary and commission
• (b) Commission to agents
• (c) Freight & carriage on sales
• (d) Sales tax
• (e) Bad debts
• (f) Advertising
• (g) Packing expenses
• (h) Export duty.. etc
Sreejith S Fims 2008
 Administrative Expenses.
• (a) Office salaries & wages
• (b) Insurance
• (c) Legal expenses
• (d) Trade expenses
• (e) Rates & taxes
• (f) Audit fees
• (g) Insurance
• (h) Rent
• (i) Printing and stationery
• (j) Postage and telegrams
• (k) Bank charges… etc
Sreejith S Fims 2008
 Financial Expenses
• (a) Discount allowed
• (b) Interest on Capital
• (c) Interest on loan
• (d) Discount Charges on bill discounted

Sreejith S Fims 2008

 Maintenance, depreciations and
Provisions etc
• (a) Repairs
• (b) Depreciation on assets
• (c) Provision or reserve for doubtful debts
• (d) Reserve for discount on debtors.

Sreejith S Fims 2008

 Prepare a Profit and Loss Account
• Salaries 110000

• Legal Charges 25000

• Consultancy fee 32000

• Audit Fee 1000

• Discount Received 18000

• Electricity 17000

• Gross profit 420000

• Postage & Telegram 12000

• Stationary 27000

• Depreciation 65000

• Discount Allowed 19000

• Bad debts 17000

• Interest 70000
Sreejith S Fims 2008
 Trial Balance on 31st March 2008
Particulars Debit Credit
Capital 10000
Opening Stock 2000
Cash 1440
Machinery 7360
Purchases 18200
Wages 10000
Discount 500 300
Office Exp 6000
Sales 50000
Sundry Debtors 8500
Sundry Creditors 3700
Salary 10000

64000 64000
Closing Stock Rs 2700
Sreejith S Fims 2008
Sreejith S Fims 2008
 Trial Balance on 31st March 2008
Particulars Debit Credit
Capital 870000
Purchase & Sales 605000 1210000
Opening Stock 72000
Debtors and Creditors 90000 170000
Bank Loan 200000
Overdraft 112000
Salaries 270000
Advertisement 110000
Other Exp 60000
Returns 40000
Furniture 450000
Building 890000
Cash 5000
2592000 2592000
Closing Stock Rs 100000
Sreejith S Fims 2008