Trading,And Profit and Loss Ac

8/9/2019 Trading,And Profit and Loss Ac

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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 theGross Profit of the firm.

Trading A/c should be debited with the following items:Opening Stock

Purchases cash as well as credit purchasePurchases, Returns or Returns outwardsGoods withdrawn for personal use

Goods distributed as free samplesGoods given as charityDirect Expenses such as freight inward, import duty, direct wages, factoryexpenses.Trading A/c should be credited with the following items:Sales, less Sales returns or Returns inwards, Closing stock


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Format for Trading A/cTrading 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&LA/c

--------

--------

--------

--------

--------

--------

--------

By Sales

Less Returns inwards

Closing Stock

Gross Loss transferred to

P&L A/c

--------

--------

--------

--------

--------


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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 31 st March, 2002. The firm started business on 1 st April, 2001

Closing stock on 31.3.2002 Rs. 3000


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Trading A/c of ABC Ltd.For the year ended 31 st March, 2002


Rs.Particulars

Cr.Amount

Rs.

To Purchases 40,000

Less. Return Outward 150Carriage Inward

Freight Inward

Wages

Fuel

Gross Profit transferred to P/L A/c

39,8502,000

2,300

5,000

1,000

2,600

By Sales 50,000

Return inward 250By closing Stock

49,7503,000

52,750 52,750


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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:


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Dr Profit & Loss A/c of ------ for the Period ending -------Cr Particulars Rs. Particulars Dr.

To gross Loss b/dSalaries & wages

Rent, rates & taxesDepreciationDiscount allowedCarriage outwardAdvertising

Bad debtsInterest on Loan

Net profit transferred tocapital A/c

--------------

-----------------------------------

---------------------

By Gross Profit b/dInterest earned

Commission earnedRent recd.Profit on sale of fixed assetsIncome from investments

Net Loss transferred to Cap.

A/c

--------------

-----------------------------------

-------

A general format of a P&L A/c is shown below:-


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Particulars Debit Credit Rs.

Mohans CapitalMohans DrawingsPurchases & salesSales & Purchase ReturnsStock (1-4-2000)WagesBuildingFreight and CarriageTrade expensesAdvertisementInterest

Taxes & Insurance

7608,900280

1200800

22,0002,000200240

130

29,000

15,000450

350

Ex. From the following trial balance of Mohan Singh & Sons, preparethe Trading & P&L A/c for the year ended 31 st March, 2001

Trial BalanceAs on 31 st March, 2001


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Particulars Debit Credit Rs.

Debtors & Creditors

Bills Rec. & Bills PayableCash at Bank Cash in HandSalaries

6,500

1,5001,200

190800

46,700

1200

700

46,700

Closing Stock : Rs. 1500


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Particulars AmountRs.


Opening Stock Purchase 8,900Returns 450WagesFreight & CarriageGross Profit c/d

Trade ExpenseAdvertisementTaxes & InsuranceSalaries

Net Profit

1,200

8,450800

2,0003,770

16,220200240130800

2,7504,120

By Sales 15,000Less 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 31 st March, 2001


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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)


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Balance Sheet of ..As at..

Liabilities AmountRs.

Assets AmountRs.

Current LiabilitiesBank OverdraftBills Payable

Outstanding ExpensesSundry CreditorsIncome recd. in advanceLong Term LiabilitiesLoanCapitalOpening BalanceAdd: Net Profit(Less: Net Loss)Less Drawings

Current AssetsCash in HandCash at Bank

Bills ReceivableSundry DebtorsPrepaid ExpensesClosing Stock InvestmentsFixed AssetsFurniture & FixturesPlant & MachineryBuildingLandGood Will


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Particulars AmountDebit Rs. Credit Rs.

Opening Stock

Purchases and SalesReturnsDiscountCapital and DrawingsCash and Bank OverdraftDebtors and CreditorsCarriage & CartageFreight outwardSalaries & WagesStationery

10,000

20,0002,0001,0005,0007,000

19,0003,0004,0006,0004,000

40,0001,0002,000

65,00012,00012,000

Ex. Prepare Trading and Profit and Loss A/c and a balance sheet as on 31 st

March, 1999 from the under mentioned Trial Balance of PQR Ltd.

Trial Balance

As on 31st

March, 1999


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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


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Trading AccountFor the year ended 31 st March, 1999

Dr.


Particulars

Cr.

AmountRs.

Opening Stock

Purchase 20,000

Less Returns 1000

Carriage & Cartage

Gross Profit Transferred toP/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


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Profit and Loss A/c of PQR LtdFor the year ended 31 st March, 1999


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


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Balance Sheet of PQR Ltd.As on 31 st March, 1999


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


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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 returnhave 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.


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Explanation

Salaries & Wages: The wages paid to workers, Works manager, Foreman Etc. aredirect 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 directexpense.

Interest on Loans, overdrafts is an indirect expense. Commission paid,all expensesincurred 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.


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Methods of Presenting the Final Accounts1. Horizontal Form2. Vertical Form

Vertical Format of Profit & Loss AccountParticulars Rs.

A SalesLess returns

B Cost of Goods SoldOpening Stock Add-PurchasesLess ReturnsAdd. Direct Expenses

- Carriage, Wages & SalariesCOGS available for saleLess Closing Stock


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Particulars Rs.

C Gross Profit (A - B)

D Operating ExpensesCarriage outwardDiscount AllowedCommission AllowedTraveling ExpensesBad DebtsRent, Rates & TaxesSalaries & WagesDepreciation

E Operating Profit/Loss


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Particulars Rs.

F Non-operating Resultsa) Interest earned

Discount earnedMisc. Income

b) Non-operating expensesInterest paidLoss on Sale of a fixed asset

Net Profit


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Vertical Form of Balance Sheet

Particulars Rs.

Source of FundsShareholders FundsLong Term DebtsApplication of FundsCurrent AssetsCash in handCash in Bank Bills ReceivablesDebtors

Stock Prepaid ExpenseCurrent LiabilitiesBills PayableCreditors


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Particulars Rs.

Income recd. In advanceInvestmentsFixed AssetsFurniture & FixturesPlant and MachineryBuildingLandGoodwill


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Debit Rs. Credit Rs.

Purchases

Discount allowed

Wages

SalariesSales

Traveling Expenses

Commission paid

Carriage inward

Administration expenses

Trade Expenses

Interest Paid

Building

Furniture

21,750

1,300

6,500

2,000

400

425

275

105

600

250

5,000

200

35,000

Final Accounts with AdjustmentsFrom the following Trial Balance of M/s Jackson Ltd.Prepare- i) Profit and Loss Account for the year ending on 31 st March 2002; &ii) Balance sheet as on that date.


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Debit Rs. Credit Rs.

Debtors

Capital

Creditors

Cash

4,250

7,045

13,000

2,100

Stock on 31 st March 2002 was Rs. 6000

Adjustments: i) Depreciate buildings by 20%

ii) Create a provision for bad debts at 10% on debtors; &

iii) Outstanding wages are Rs. 475 /-


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Profit & Loss Account of M/s Jackson Ltd.For the year ended 31 st March, 2002


Assets AmountRs.

PurchasesWages 6500Add outstanding wages 475Carriage inwardSalariesDiscount allowedTraveling expensesCommission paid

Admin ExpensesInterest paidDepn. on buildingsProv. For bad debts

Net Profit 5495

21,750

6975275

20001300400425

600250

1000425

35,000

Sales 35,000


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CASHFLOW STATEMENT .

This is a relatively new statement that reflects a firms major sources of cash

receipts and cash payments. It reports the cash effects during a period of not onlythe firms operations but also its investing and financing activities. Neither of the

other two statements describes then investments in assets during the period and

how these investments are financed.

Documents

Trading,And Profit and Loss Ac