What is Trading And Profit And Loss Account - Definition -T& P&L Example Format - Formulas
What is Trading Account?
The Trading Account is the part of Cost of Goods Sold Statement i.e., it is related to finished goods or completed goods which have
been manufactured in a industry. It is prepared to calculate Gross Profit or Gross Loss for the accounting period. It is a type of Ledger where Direct Revenues such as Sales on Credit Side and Direct Expenses such as Purchases on Debit Side are recorded. It is not prepared for Services Companies as it is related to goods or products.
If the Credit Side is greater than Debit side, then there is Gross Profit but if the Debit Side exceeds the Credit Side, then there is Gross Loss.
In the calculation of Gross Profit, the Closing Stock or Ending Inventory is valued at the cost which includes those goods unsold at the end of the accounting period and it must be offset
with the revenue of that particular period according to Matching Principle Gaap as the all the cost incurred in earning revenues must be match with the revenues of the accounting period. To understand this concept, let’s us take
an example. For Company ABC Co., If 1000 units are purchased at the cost of Rs. 100 Per Unit, then only 950 units sold out for Rs. 120 Per Unit, then 50 units remain unsold is called stock that must be match with the revenue
as shown below:
Sales (950 X 120) = Rs. 114000
Purchases (1000 X 100) = Rs. 100000
Cost of Units remain unsold / Closing Stock = 50 X 100 = Rs. 5000
Below is the Trading Account For ABC Co. for the accounting period of July, 2018.
ABC Co.
Trading Account Format
For the Accounting Period, July, 2018
Rs. Rs.
Cost of Sales 95000 Sales 114000
Gross Profit 24000 Closing Stock 5000
________ ________
Totals 119000 Totals 119000
________ ________
________ ________
Rs.
Opening Stock -
Net Purchases 100000
Closing Stock (5000)
________
Cost of Sales 95000
________
________
Formula:
Gross Profit = Net Sales - Cost of Sales = 114000 - 95000 = Rs. 24000
What is Profit And Loss Account (P&L)
A Profit And Loss Account (also called Income Statement in American Accounting System) is prepared to calculate Net Profit or Net Loss or Financial Performance of the business for the accounting period. Gross Profit or Gross Loss find out under Trading Account (Explained Above) is transferred to this Account. It includes all Indirect Revenues / Incomes and Indirect Expenses for the period.
ABC Co.
Profit And Loss Account
For The Month July, 2018
Rs. Rs.
Rent Expenses 3000 Gross Profit 24000
Travelling Expenses 1500 Investment Received 10000
Utility Expenses 2000 Bad Debts Recovered 100
Salaries Expenses 500
Bad Debts 300
Advertising Exp. 500
Depreciation Exp. 1000
Net Profit 25300
________ _________
Totals 34100 Totals 34100
________ _________
________ _________
Here Net Profit = Gross Profit + All Revenues - All Expenses
So, it is all about Trading Account and Profit And Loss Account With Example & Format.
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