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TRADING, PROFIT & LOSS A/C
The Trading A/c is prepared with a view to ascertaining the profitability of the goods purchased and the goods sold by the trading firm. Expenses and incomes of a variable nature are taken into consideration to find out the Gross Profit of the firm.Trading A/c should be debited with the following items:Opening StockPurchases – cash as well as credit purchasePurchases, Returns or Returns outwardsGoods withdrawn for personal useGoods distributed as free samplesGoods given as charityDirect Expenses such as freight inward, import duty, direct wages, factory expenses.Trading A/c should be credited with the following items:Sales, less Sales returns or Returns inwards, Closing stock
Format for Trading A/c Trading A/c of ……………..for the Period Ending
Dr.Particulars Amount
Rs.Particulars
Cr.Amount
Rs.
To Opening Stock
+ Purchases
Less Returns outwards
Direct Expenses
Wages
Carriage inwards
Gross Profit Transferred to P&L A/c
--------
--------
--------
--------
--------
--------
--------
By Sales
Less Returns inwards
Closing Stock
Gross Loss transferred to P&L A/c
--------
--------
--------
--------
--------
Sales
Returns outward
Salaries & wages
Carriage inward
Returns inward
Freight inward
Interest
Rs. 50,000
150
4,000
2,000
250
2,300
3,000
Office Expenses
Wages
Fuel
Insurance
Cash
Purchases
Rent
Rs. 2,000
5,000
1,000
3,721
1,500
40,000
700
Ex. From the following information relating to ABC Ltd., prepare Trading A/c for the year ending on 31st March, 2002. The firm started business on 1st April, 2001
Closing stock on 31.3.2002 Rs. 3000
Trading A/c of ABC Ltd.For the year ended 31st March, 2002
Dr.Particulars Amount
Rs.Particulars
Cr.Amount
Rs.
To Purchases 40,000
Less. Return Outward 150
Carriage Inward
Freight Inward
Wages
Fuel
Gross Profit transferred to P/L A/c
39,850
2,000
2,300
5,000
1,000
2,600
By Sales 50,000
Return inward 250
By closing Stock
49,750
3,000
52,750 52,750
Profit & Loss A/c
The P&L A/c is prepared to ascertain the Net Profit earned or NetLoss incurred by the business operations during an accounting Period .All the indirect revenue expenses and Loss are charged.A general format of a P&L A/c is shown below:
Dr…… Profit & Loss A/c of ------ for the Period ending -------Cr
Particulars Rs. Particulars Dr.
To gross Loss b/d Salaries & wages Rent, rates & taxes DepreciationDiscount allowed Carriage outwardAdvertisingBad debtsInterest on LoanNet profit transferred to capital A/c
----------------------------------------------------------------------
By Gross Profit b/dInterest earnedCommission earnedRent recd.Profit on sale of fixed assetsIncome from investmentsNet Loss transferred to Cap. A/c
-------------------------------------------------
-------
A general format of a P&L A/c is shown below:-
Particulars Debit Credit Rs.Mohan’s CapitalMohan’s DrawingsPurchases & salesSales & Purchase ReturnsStock (1-4-2000)WagesBuildingFreight and CarriageTrade expensesAdvertisementInterestTaxes & Insurance
7608,9002801200800
22,0002,000200240
130
29,000
15,000450
350
Ex. From the following trial balance of Mohan Singh & Sons, prepare the Trading & P&L A/c for the year ended 31st March, 2001
Trial BalanceAs on 31st March, 2001
Particulars Debit Credit Rs.Debtors & CreditorsBills Rec. & Bills PayableCash at BankCash in HandSalaries
6,5001,5001,200 190 80046,700
1200 700
46,700
Closing Stock : Rs. 1500
Particulars AmountRs.
Particulars AmountRs.
Opening StockPurchase 8,900Returns 450WagesFreight & CarriageGross Profit c/d
Trade ExpenseAdvertisementTaxes & InsuranceSalariesNet Profit
1,200
8,450800
2,0003,770
16,220200240130800
2,7504,120
By Sales 15,000 Less Return 280Closing Stock
Gross Loss b/dInterest
14,7201500
16,220
3,770350
4,120
Trading & P&L A/c of Mohan Singh & SonsFor the year ended 31st March, 2001
Explanation
Purchases have a debit balance – Rs. 8900 whereas Sales have a credit balance of Rs. 15000. Purchase returns show credit balance and sales returns show debit balance. Thus Rs. 280 represents sales returns (Debit Balance) and Rs. 450 is purchases returns (credit balance)
Balance Sheet of ………..As at……..
Liabilities AmountRs.
Assets AmountRs.
Current LiabilitiesBank OverdraftBills PayableOutstanding ExpensesSundry CreditorsIncome recd. in advanceLong Term LiabilitiesLoanCapital Opening BalanceAdd: Net Profit(Less: Net Loss)Less Drawings
Current AssetsCash in HandCash at BankBills ReceivableSundry DebtorsPrepaid ExpensesClosing StockInvestmentsFixed AssetsFurniture & FixturesPlant & MachineryBuildingLandGood Will
Particulars AmountDebit Rs. Credit Rs.
Opening StockPurchases and SalesReturnsDiscountCapital and DrawingsCash and Bank OverdraftDebtors and CreditorsCarriage & CartageFreight outwardSalaries & WagesStationery
10,00020,0002,0001,0005,0007,00019,0003,0004,0006,0004,000
40,0001,0002,00065,00012,00012,000
Ex. Prepare Trading and Profit and Loss A/c and a balance sheet as on 31st March, 1999 from the under mentioned Trial Balance of PQR Ltd.
Trial BalanceAs on 31st March, 1999
Particulars AmountDebit Rs. Credit Rs.
Land & BuildingsPlant and MachineryFixtures and FittingsBills Receivable and Payable
General Reserve
Closing Stock: Rs. 9,000
35,00015,0005,0006,000
1,42,000
4,000
6,0001,42,000
Trading AccountFor the year ended 31st March, 1999
Dr.Particulars Amount
Rs.Particulars
Cr.Amount
Rs.
Opening Stock
Purchase 20,000
Less Returns 1000
Carriage & Cartage
Gross Profit Transferred to P/L A/c
10,000
19,000
3,000
15,000
47,000
Sales 40,000
Less Returns 2000
Closing Stock
38,000
9,000
47,000
Profit and Loss A/c of PQR LtdFor the year ended 31st March, 1999
Dr.Particulars Amount
Rs.Particulars
Cr.Amount
Rs.
Discount
Freight Outward
Salaries & Wages
Stationery
Net Profit Transferred to Capital A/c
1000
4,000
6,000
4,000
2,000
17,000
Gross Profit b/d
Discount recd.
15,000
2,000
17,000
Balance Sheet of PQR Ltd.As on 31st March, 1999
Liabilities AmountRs.
Assets AmountRs.
Bank overdraft
Creditors
Bills Payable
Capital 65,000
Add: Net Profit 2000
Less: Drawings -5,000
General Reserve
12000
12000
4000
62,000
6,000
Cash in Hand
Debtors
Closing Stock
Bills Receivable
Land & Buildings
Plant & Machinery
Fixtures & Fittings
7,000
19,000
9,000
6,000
35,000
15,000
5,000
96,000 96,000
Notes
i) Purchases & Sales: Purchases have a debit balance; sales have a credit balance.
ii) Purchase Returns have a credit balance (the reverse of Purchases). Sales return have a debit balance (reverse of sales)
iii) Discount allowed has debit balance, discount recd. has credit balance.
iv) Capital has credit balance. Drawings have debit.
v) Cash always has debit balance (asset). Overdraft (liability) has credit balance.
vi) Debtors (asset) – debit balance. Creditors (liability) credit balance.
Explanation
Salaries & Wages: The wages paid to workers, Works manager, Foreman Etc. are direct expenses. Salaries paid to office staff, even partners, are an indirect expense. Rent of office, shop, showroom is an indirect expense. Rent of factory is a direct expense.
Interest on Loans, overdrafts is an indirect expense. Commission paid,all expenses incurred for sales promotion are indirect.
Carriage & freight outward are incurred after sale & hence are indirect.
Printing and Stationery are indirect expenses
Advertising is an indirect expense.
Samples to prospective customers – indirect
Discount allowed – indirect expense
Discount recd – income – credit to P&L A/c
Insurance on office premises etc is indirect. Insurance paid on the life of a partner is a drawing & not an expense of the firm.
Methods of Presenting the Final Accounts1. Horizontal Form2. Vertical Form Vertical Format of Profit & Loss Account
Particulars Rs.
A Sales Less returnsB Cost of Goods Sold Opening Stock Add-Purchases Less Returns Add. Direct Expenses - Carriage, Wages & Salaries COGS available for sale Less Closing Stock
Particulars Rs.
C Gross Profit (A - B) D Operating Expenses Carriage outward Discount Allowed Commission Allowed Traveling Expenses Bad Debts Rent, Rates & Taxes Salaries & Wages Depreciation E Operating Profit/Loss
Particulars Rs.
F Non-operating Resultsa) Interest earned Discount earned Misc. Incomeb) Non-operating expenses Interest paid Loss on Sale of a fixed asset
Net Profit
Vertical Form of Balance Sheet
Particulars Rs.
Source of FundsShareholders FundsLong Term DebtsApplication of FundsCurrent AssetsCash in handCash in BankBills ReceivablesDebtorsStockPrepaid ExpenseCurrent LiabilitiesBills PayableCreditors
Particulars Rs.
Income recd. In advance InvestmentsFixed AssetsFurniture & FixturesPlant and MachineryBuilding LandGoodwill
Adjustments• Closing Stock
• For Outstanding Expenses
• For Prepaid Expenses of the Business
• For the Depreciation on Assets
• Interest on Capital
• Interest on Drawings
• For Bad Debts
• For Provision for Bad and Doubtful Debts
