Download - 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Purchases cash as well as credit purchasePurchases, Returns or Returns outwardsGoods withdrawn for personal use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
Dr.Particulars Amount
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.
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 AmountRs.
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
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
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Balance Sheet of PQR Ltd.As on 31 st 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
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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
Liabilities AmountRs.
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.