TOPIC 6: ELEMENTARY TRADING PROFIT AND LOSS ACCOUNT ~ B/KEEPING FORM 1

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 Account

Describe what a Trading, profit and Loss account is

Trading 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 SOLD

PROFIT 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.

EXAMPLE

Ashok and Tanaji are Partners sharing Profit and Losses in the ratio 2:3 respectively. Their Trial Balance as on 31^st March, 2007 is given below. You are required to prepare Trading and Profit and Loss Account for the year ended 31^st March, 2007 and Balance Sheet as on that date after taking into account the given adjustments.

Trial Balance as on 31^st March, 2007