TOPIC 6: ELEMENTARY TRADING PROFIT AND LOSS ACCOUNT Final accounts
give a concise idea about the profitability and financial position of a
business to its management, owners, and other interested parties. All
business transactions are first recorded in a journal. They are then
transferred to a ledger and balanced.These final
tallies are prepared for a specific period. The final accounts consist
of trading account, profit and loss account, and balance sheet.Trading, Profit and Loss AccountDescribe what a Trading, profit and Loss account isTrading
account are those accounts prepared at the end of accounting period for
the determination of gross profit or gross loss of the business.GROSS PROFIT=SALES-COST OF GOODS SOLDPROFIT AND LOSS ACCOUNT;A
profit and loss statement (P&L) is a financial statement that
summarizes the revenues, costs and expenses incurred during a specific
period of time, usually a fiscal quarter or year. These records provide
information about a company’s ability –or lack thereof –to generate
profit by increasing revenue, reducing costs, or both. The P&L
statement is also referred to as “statement of profit and loss”, “income
statement,” “statement of operations,” “statement of financial
results,” and “income and expense statement.”NET PROFT=NET PROFIT & OTHER INCOME-TOTAL EXPENSES.EXAMPLEAshok and Tanaji are Partners sharing Profit and Losses in the ratio 2:3 respectively. Their Trial Balance as on 31st March, 2007 is given below. You are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2007 and Balance Sheet as on that date after taking into account the given adjustments.Trial Balance as on 31st March, 2007
- Closing stock is valued at the cost of Rs. 15,000 while its market price is Rs.18,000.
- On 31st March, 2007 the stock of stationery was Rs. 500.
- Provide reserve for bad and doubtful debts at 5% on debtors.
- Depreciate building at 5% and patent rights at 10%.
- Interest on capitals is to be provided at 5% p.a
Trading Account for the year ended 31st March 2007
Gross Profit or Gross LossDetermine the Gross profit or Gross LossProfit & Loss A/c for the year ended 31st March 2007
Partner’s Capital A/c
Balance Sheet as on 31-3-2007
The Cost of Goods SoldDetermine the cost of goods soldActivity 1Determine the cost of goods soldThe Net Profit and the Net LossDetermine the net profit and the net lossActivity 2Determine the net profit and the net loss