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XYZ club has a bar that maintains a separate trading account for its trading activities. Which of the following is the treatment of profit or loss on bar trading activities?
- a)Profit and loss is credit in income statement
- b)Profit and loss to be presented in income and expenditure account
- c)Profit and loss is added to accumulated fund
- d)None
Correct answer is option 'B'. Can you explain this answer?
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XYZ club has a bar that maintains a separatetrading accountfor itstrad...
Treatment of Profit or Loss on Bar Trading Activities
The correct option is B, i.e., profit and loss to be presented in income and expenditure account. Here's why:
- The income and expenditure account is a statement that shows the revenue earned and expenses incurred during a particular period, typically a year. It is prepared by non-profit organizations, such as clubs, to ascertain their financial performance.
- The bar of XYZ club maintains a separate trading account for its trading activities. A trading account is a statement that shows the gross profit or loss of a business from its trading activities, such as buying and selling goods or services.
- Therefore, the profit or loss on bar trading activities of XYZ club should be transferred to the income and expenditure account, which will show the net profit or loss of the club, along with other revenue and expenses.
- The treatment of profit or loss on bar trading activities as a credit in the income statement (option A) is incorrect because the income statement is the same as the income and expenditure account in the context of non-profit organizations.
- The treatment of profit or loss on bar trading activities as added to accumulated fund (option C) is incorrect because the accumulated fund is a part of the balance sheet, which shows the financial position of a business at a particular point in time, whereas the income and expenditure account shows the financial performance over a period.
- Option D, i.e., none, is incorrect because the profit or loss on bar trading activities must be accounted for in the income and expenditure account, as per the accounting principles and practices.
The correct option is B, i.e., profit and loss to be presented in income and expenditure account. Here's why:
- The income and expenditure account is a statement that shows the revenue earned and expenses incurred during a particular period, typically a year. It is prepared by non-profit organizations, such as clubs, to ascertain their financial performance.
- The bar of XYZ club maintains a separate trading account for its trading activities. A trading account is a statement that shows the gross profit or loss of a business from its trading activities, such as buying and selling goods or services.
- Therefore, the profit or loss on bar trading activities of XYZ club should be transferred to the income and expenditure account, which will show the net profit or loss of the club, along with other revenue and expenses.
- The treatment of profit or loss on bar trading activities as a credit in the income statement (option A) is incorrect because the income statement is the same as the income and expenditure account in the context of non-profit organizations.
- The treatment of profit or loss on bar trading activities as added to accumulated fund (option C) is incorrect because the accumulated fund is a part of the balance sheet, which shows the financial position of a business at a particular point in time, whereas the income and expenditure account shows the financial performance over a period.
- Option D, i.e., none, is incorrect because the profit or loss on bar trading activities must be accounted for in the income and expenditure account, as per the accounting principles and practices.
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XYZ club has a bar that maintains a separatetrading accountfor itstrading activities. Which of the following is the treatment of profit or loss on bar trading activities?a)Profit and loss is credit in income statementb)Profit and loss to be presented in income and expenditure accountc)Profit and loss is added to accumulated fundd)NoneCorrect answer is option 'B'. Can you explain this answer?
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