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Trading and Profit and Loss Account

Now, with the profit and loss account added to the trading account, the trading and profit and loss account is as below:

Trading and Profit and Loss Account as at 31 December 20XX


Amount

Amount

$

$
Opening stock 700
Sales 4,250
Purchases 3,300



4,000


Less: Closing stock 850


Cost of goods sold 3,150


Gross profit c/d
1,100








4,250

4,250





Electricity 250
Gross profit b/d 1,100
Insurance 160


Printing & stationery 120


Rent 150


General expenses 80


Net profit 340








1,100

1,100





The above trading and profit and loss account forms part of the double entry system. It is presented horizontally which means the debit side is on the left and the credit side is on the right. The only exception is the closing stock which is a credit item but shown as deduction on the debit side in order to calculate the cost of goods sold.


Electricity Account

Date Particulars Folio Amount
Date Particulars Folio Amount



$



$
20XX



20XX


31 Dec Balance c/d
250
31 Dec Profit and loss
250


Insurance Account

Date Particulars Folio Amount
Date Particulars Folio Amount



$



$
20XX



20XX


31 Dec Balance c/d
160
31 Dec Profit and loss
160


Printing and Stationery Account

Date Particulars Folio Amount
Date Particulars Folio Amount



$



$
20XX



20XX


31 Dec Balance c/d
120
31 Dec Profit and loss
120


Rent Account

Date Particulars Folio Amount
Date Particulars Folio Amount



$



$
20XX



20XX


31 Dec Balance c/d
150
31 Dec Profit and loss
150


General Expenses Account

Date Particulars Folio Amount
Date Particulars Folio Amount



$



$
20XX



20XX


31 Dec Balance c/d
80
31 Dec Profit and loss
80


Trading and Profit and Loss Account as at 31 December 20XX



$
$
Sales

4,250
Less: Cost of goods sold



Opening stock
700


Purchases 3,300








4,000


Less: Closing stock 850
3,150





Gross profit

1,100
Less: Expenses



Electricity 250


Insurance 160


Printing & stationery 120


Rent 150


General expenses 80






Net profit

340





The above trading and profit and loss account is presented vertically. Unlike the horizontal presentation, it does not show the debit and credit sides. Either way is used, the gross and net profits are the same.

Treatment of net profit/loss and the capital account

Each entry that goes into the trading and profit and loss account either increases or decreases the capital of the proprietor. Those on the credit side like sales, closing stock, discounts received, etc. increase the capital while those on the debit side such as opening stock, purchases, and rent decrease it. The net profit is a credit balance as it is a gain to the business, and so is added to the capital.

By having the trading and profit and loss account, all items that appear therein are prevented from being entered in the capital account and thus overloading it. Only one item from this account – net profit or net loss –  is transferred to the capital account.


Capital Account

Date Particulars Folio Amount
Date Particulars Folio Amount



$



$
20XX



20XX


31 Dec Balance c/d
4,950
31 Dec Balance b/d

4,610





" Net profit
340












4,950



4,950














20X1







1 Jan Balance b'/d
4,950



Last Updated (Thursday, 07 October 2010 02:45)