FINANCIAL STATEMENTS

1. TRADING AND PROFIT AND LOSS ACCOUNT (INCOME

STATEMENT / STATEMENT OF COMPREHENSIVE
INCOME)

2. BALANCE SHEET (STATEMENT OF FINANCIAL

POSITION)

1. The Trading and Profit and Loss Account is prepared to

determine the profits/losses made in the period.
 The Trading and Profit and Loss Account is divided into
2 parts:
a.)The Trading Account &
b.) The Profit and Loss Account

a.) The Trading Account is prepared to determine the

Gross Profit of the business.
 First, the Cost of Goods Sold is calculated.
Gross Profit = Sales – Cost of Goods Sold
 Gross Profit is the profit of the business BEFORE
expenses are paid.

b.) The Profit and Loss Account is prepared to

determine the Net Profit of the business.
Net Profit = Gross Profit – Expenses
 Net Profit is the profit of the business AFTER expenses
are paid.
ITEMS IN A TRIAL BALANCE USED TO PREPARE A
TRADING ACCOUNT ARE:
 Sales
 Sales returns
 Opening/beginning inventory
 Ending/closing inventory
 Purchases
 Purchases returns
 Carriage inwards
ITEMS IN A TRIAL BALANCE USED TO PREPARE THE
PROFIT AND LOSS ACCOUNT ARE:
 Gross profit from the Trading Account
 Expenses
 Revenues
 A Trading and Profit and Loss Account for a business that has been
operating for only one (1 year) – FORMAT
L. Adams
Trading and Profit and Loss Account for the year ended 31 December 2020
$ $
Sales 38 500
Less: Cost of goods sold:
Purchases 29 000
Less: Closing inventory 3 000
Cost of goods sold 26 000
Gross Profit 12 500
Less: Expenses:
Rent 2 400
Electricity 1 500
General expenses 600
Total Operating Expenses 4 500
Net Profit 8 000
 H. Rabkin
Trading and Profit and Loss Account for the year ended 31 December 2017
$ $
Sales 92 310
Less: Cost of goods sold:
Purchases 73 145
Less Closing Inventory 12 740
Cost of goods sold 60 405
Gross Profit 31 905
Less: Operating Expenses:
Wages 10 750
Motor expenses 2 600
Rent and rates 3 350
Insurance 555
General expenses 525
Total Operating Expenses 17 780
Net Profit 14 125

SOLUTION FOR 11.1

HOME-WORK – 11.3X – PAGE 97.