Trading Account & Profit and Loss Account
Purpose of business is to earn profit. Trader is in position to know how well he has fared during a trading period. Uncommon for a business end up into a loss. The trader determines the profitability of the business by preparing financial Account, Profit and Loss Account.
Trading Account
The purpose of this account determines gross profit or loss. Gross profit is the excess of the sales over cost of goods sold, including the expenses directly attributable to put goods in a saleable condition.
The cost of the goods is represented by the value of the goods purchased during the period, including carriage in bringing the goods to the trade premises.
Gross profit (GP) = Sales – Purchases.
Gross loss (GL) = Purchases – Sales.
Stock: Unsold goods and are of two kinds, opening stock and closing stock.
Opening stock: is unsold goods which available at the beginning of trading period e.g. Available before starting business.
Closing stock: unsold goods available at the end of trading period i.e. goods remained unsold at the end of trading period.
TRADING PERIOD
Is the period which a proprietor uses to evaluate his / her business to check of earn/ profit or losses from a business. Usually will be one year.
TRADING ACCOUNT FORMAT.
DR TRADING ACCOUNT CR
|
Details/Particular |
|
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
|
xxx |
Sales |
|
xxx |
|
Add: Purchases |
|
xxx |
|
|
|
|
Goods available for sales |
|
xxx |
|
|
|
|
|
|||||
|
Less: Closing stock |
|
xxx |
|
|
|
|
Cost of goods sold |
|
xxx |
|
|
|
|
Gross profit c/d |
|
xxx |
|
|
|
|
|
|
xxx |
|
|
xxx |
|
|
|
|
Gross Profit |
b/d |
xxx |
|
|
|
|
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|
edu.uptymez.com
Example.1:
Prepare trading Account for the year ended 2008.
Purchases 18,000
Sales 27,000
Stock at 1.1.2008 3,000
Stock at 31.12.2008 1,500
Solution
DR TRADING ACCOUNT FOR THE YEAR ENDED 31.12.2008 CR
|
Details/Particular |
|
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
|
3,000 |
Sales |
|
27,000 |
|
Add: Purchases |
|
18,000 |
|
|
|
|
Good available for sales |
|
|
|
|
|
|
21,000 |
|||||
|
Less: Closing stock |
|
1,500 |
|
|
|
|
Cost of goods sold |
|
19,500 |
|
|
|
|
Gross profit c/d |
|
7,500 |
|
|
|
|
|
|
27,000 |
|
|
27,000 |
|
|
|
|
Gross Profit |
b/d |
7,500 |
|
|
|
|
|
|
|
|
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edu.uptymez.com
EXERCISE.1
PREPARE TRADING Account for the year ended 2008.
Purchases 12,000
Sales 30,000
Stock at 1.1.2008 5,000
Stock at 31.12.2008 2,000
EXERCISE.2
Prepare trading Account for the year ended 2008
Purchase 70,000
Sales 120,000
Stock at 1.1.2008 30,000
Stock at 31.12.2008 25,000
EXERCISE.3
Prepare trading Account for the given the following.
Purchases 170,000
Sales 180,000
Stock at 1.7.2006 60,000
Stock at 30.6.2007 40,000
Solution.QN1
DR TRADING ACCOUNT FOR THE YEAR ENDED 31.12.2008 CR
|
Details/Particular |
|
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
|
5,000 |
Sales |
|
30,000 |
|
Add: Purchases |
|
12,000 |
|
|
|
|
Good available for sales |
|
|
|
|
|
|
17,000 |
|||||
|
Less: Closing stock |
|
2,000 |
|
|
|
|
Cost of goods sold |
|
15,000 |
|
|
|
|
Gross profit |
c/d |
15,000 |
|
|
|
|
|
|
30,000 |
|
|
30,000 |
|
|
|
|
Gross Profit |
b/d |
15,000 |
|
|
|
|
|
|
|
edu.uptymez.com
Solution.QN2
DR TRADING ACCOUNT FOR THE YEAR ENDED 31.12.2008 CR
|
Details/Particular |
|
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
|
30,000 |
Sales |
|
120,000 |
|
Add: Purchases |
|
70,000 |
|
|
|
|
Good available for sales |
|
|
|
|
|
|
100,000 |
|||||
|
Less: Closing stock |
|
25,000 |
|
|
|
|
Cost of goods sold |
|
75,000 |
|
|
|
|
Gross profit |
c/d |
45,000 |
|
|
|
|
|
|
120,000 |
|
|
120,000 |
|
|
|
|
Gross Profit |
b/d |
45,000 |
|
|
|
|
|
|
|
edu.uptymez.com
Solution.QN3
DR TRADING ACCOUNT FOR THE YEAR ENDED 31.12.2008 CR
|
Details/Particular |
|
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
|
60,000 |
Sales |
|
180,000 |
|
Add: Purchases |
|
170,000 |
Gloss loss |
c/d |
10,000 |
|
Good available for sales |
|
|
|
|
|
|
230,000 |
|||||
|
Less: Closing stock |
|
40,000 |
|
|
|
|
Cost of goods sold |
|
190,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
190,000 |
|
|
190,000 |
|
Gloss loss |
c/d |
10,000 |
|
|
|
edu.uptymez.com
PROFIT AND LOSS ACCOUNT
This account is used to determine net profit or net loss.
Net profit means actual profit obtain in the business which credited to the profit and loss a/c.
DR PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2008 CR
|
Transport |
Xxxx |
Gross profit b/d Discount received |
Xxxx |
|
Rent |
Xxxx |
Xxxx |
|
|
Other expenses |
Xxxx |
|
|
|
Net profit |
Xxxx |
|
|
|
|
Xxxx |
Xxxx |
|
|
|
|
|
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Carriage Inwards.
Means transport of goods purchased. This occurs when a buyer has been paid the cost of transporting goods.
Carriage Outwards.
Transport charge of goods which paid by seller to transport goods to his customer. This occurs when seller paid cost of transporting goods.
RETURNS.
Return Inwards.
This occurs when the seller received goods returned from his customer.
Return Outwards
This occurs when the buyer returned goods to his supplier.
EXAMPLE
Prepare profit and loss Account from example given for the year ended 2004.
Gross profit 45,000
Stationary 9,000
Water bill 7,500
Electricity 5,000
Wages 2,800
General expenses 5,500
Solution
DR PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 3 DEC 2004 CR
|
Details |
Amount |
Details |
Amount |
|
Stationary |
9,000 |
Gross profit |
45,000 |
|
Water bill |
7,500 |
|
|
|
Electricity |
5,000 |
|
|
|
wages |
2,800 |
|
|
|
General expenses. |
5,500 |
|
|
|
Net profit |
15,200 |
|
|
|
|
45,000 |
|
45,000 |
|
|
|
|
|
edu.uptymez.com
EXERCISE.1
Prepare profit and loss Account from the example given for the year ended 2007.
Gross profit 120,000.
Stationery 22,000.
Water bill 15,000.
Electricity 58,000.
Wages 7,500.
General exp. 42,300.
EXERCISES 2
PREPARE PROFIT AND LOSS Account from the example given for the year ended 2002.
Gross profit 150,000
Stationary 33,000
Water bills 10,000
Electricity 28,000
Wages 15,000
General exp 3,000
EXERCISE 3.
Prepare trading, Profit and loss Account for the year ended 30 June 2003
Purchase 140,000
Sales 220,000
Stock at 1.July 2003 25,000
Stock at 30 June 2oo3 5,000
Traveling expenses 1,050
Electricity 1,200
Wages 3,000
General expenses 5,000
Rent 2,500
EXERCISE.4
Given the following information prepare Trading, Profit and loss Account for the year ended 2006.
Stock on July 2005 35,000
Stock on June 20,000
Purchases during the year 97,000
Sales during a year 180,000
Carriage inwards 7,000
Carriage outwards 5,000
Return in ward 3,000
Return out ward 1,200
Water bill 2,000
Stationery 2,500
Wages 2,500
Insurance 2,000
Stationery 1,000
EXERCISE.5
Prepare trading, profit and loss Account for the year ended 2006.
Stock at July 2005 – 15,000
Stock at June 2006 – 32,000
Purchases during the year- 85,000
Sales during the year – 225,000
Carriage in ward – 5,200
Carriage out wards – 2,000
Return in wards- 5,000
Return out wards – 15,000
Stationery- 7,000
Insurance- 3500
Electricity – 2,500
Rent- 4,000
Fumigation- 3,500
Water bills 2,500
EXERCISE.6
June 1 Balance of cash in hand 500
Balance at bank 10,000
2 Received cash from Mbigili. 250
3 Paid Chacha by cheque 1,200
4 Received cheque from Minza and banked it. 300
6 Received cash from Tatiro 120
10 Paid rent by cheque 500
15 Paid wages by cash 200
18 Paid cash to bank 100
20 Drew cash from bank for office use 200
Enter the above transactions in the cash Book and carry down the balance as at 25th June.
SOLUTIONS
Solution.QN1
DR PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2007 CR
|
Details |
Amount |
Details |
Amount |
|
Stationary |
22,000 |
Gross profit |
120,000 |
|
Water bill |
15,000 |
|
|
|
Electricity |
5,800 |
|
|
|
wages |
7,500 |
|
|
|
General expense. |
42,300 |
|
|
|
Net profit |
27,400 |
|
|
|
|
120,000 |
|
120,000 |
|
|
|
|
|
edu.uptymez.com
Solution.QN2
DR PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2007 CR
|
Details |
Amount |
Details |
Amount |
|
Stationary |
33,000 |
Gross profit |
150,000 |
|
Water bill |
10,000 |
|
|
|
Electricity |
28,000 |
|
|
|
wages |
15,000 |
|
|
|
General expense. |
3,000 |
|
|
|
Net profit |
61,000 |
|
|
|
|
150,000 |
|
150,000 |
|
|
|
|
|
|
|
|
|
|
edu.uptymez.com
Solution.QN3
DR TRADING ACCOUNT FOR THE YEAR ENDED 31.12.2008 CR
|
Details/Particular |
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
25,000 |
Sales |
|
220,000 |
|
Add: Purchases |
140,000 |
|
|
|
|
Good available for sales |
165,000 |
|
|
|
|
|
||||
|
Less: Closing stock |
5,000 |
|
|
|
|
Cost of goods sold |
160,000 |
|
|
|
|
Gross profit c/d |
60,000 |
|
|
|
|
|
220,000 |
|
|
220,000 |
|
|
|
Gross profit |
b/d |
60,000 |
|
|
|
|
|
|
edu.uptymez.com
DR PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2007 CR
|
Traveling exp |
1,050 |
Gross profit |
60,000 |
|
Electricity |
1,200 |
|
|
|
Wages |
3,000 |
|
|
|
General exp |
5,000 |
|
|
|
Rent |
2,500 |
|
|
|
Net profit |
47,250 |
|
|
|
|
60,000 |
|
60,000 |
|
|
|
|
|
edu.uptymez.com
Solution.QN4
DR TRADING, P&L ACCOUNT FOR THE YEAR ENDED 31.12.2008 CR
|
Details/Particular |
|
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
|
35,000 |
Sales |
|
180,000 |
|
Add: Purchases |
|
97,000 |
Less: Return in ward |
|
3,000 |
|
Add: carriage in wards |
|
7,000 |
|
|
177,000 |
|
Goods available for sales |
|
139,000 |
|
|
|
|
Less: Returned out ward |
|
1,200 |
|
|
|
|
|
|
137,800 |
|
|
|
|
Less: Closing stock |
|
20,000 |
|
|
|
|
cost of goods sold |
|
117,800 |
|
|
|
|
Gross profit |
c/d |
59,200 |
|
|
|
|
|
|
177,000 |
|
|
177,000 |
|
|
|
|
Gross profit |
c/d |
59,200 |
|
Carriage out ward |
|
5,000 |
|
|
|
|
Water bill |
|
2,000 |
|
|
|
|
Stationery |
|
2,500 |
|
|
|
|
Wages |
|
2,500 |
|
|
|
|
Insurance |
|
2,000 |
|
|
|
|
Stationery |
|
1,000 |
|
|
|
|
Net profit |
|
44,200 |
|
|
|
|
|
|
59,200 |
|
|
59,200 |
|
|
|
|
|
|
|
edu.uptymez.com
Solution.QN5
DR TRADING, PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2006 CR
|
Details/Particular |
|
Amount |
Details/Particular |
|
Amount |
|
Opening Stock |
|
15,000 |
Sales |
|
225,000 |
|
Add: Purchases |
|
85,000 |
Less: Return in ward |
|
5,000 |
|
Add: carriage in wards |
|
5,200 |
|
|
220,000 |
|
Goods available for sales |
|
105,200 |
|
|
|
|
Less: Returned out ward |
|
15,000 |
|
|
|
|
|
|
90,200 |
|
|
|
|
Less: Closing stock |
|
32,000 |
|
|
|
|
cost of goods sold |
|
58,200 |
|
|
|
|
Gross profit |
c/d |
161,800 |
|
|
|
|
|
|
220,000 |
|
|
220,000 |
|
|
|
|
Gross profit |
b/d |
161,800 |
|
Carriage out ward |
|
2,000 |
|
|
|
|
Stationary |
|
7,000 |
|
|
|
|
Insurance |
|
3,500 |
|
|
|
|
Electricity |
|
2,500 |
|
|
|
|
Water bill |
|
2,500 |
|
|
|
|
Rent |
|
4,000 |
|
|
|
|
Fumigation |
|
3,500 |
|
|
|
|
Net profit |
|
136,800 |
|
|
|
|
|
|
161,800 |
|
|
161,800 |
|
|
|
|
|
|
|
edu.uptymez.com
