Example: Trading and Profit and Loss Account Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

from the following trial balance of mr.
John proper trading profit and loss
account for the year ending 31st
December 2002 so we have the trial
balance debit credit the debate items
are available so we have lots a up to
here and we also have credit items but
here our task is only two proper trading
and profit in logic on so there may be
some items which may not be relevant
from trading and profit and loss angle
so let's understand item by item if you
look at purchase ok it will appear on
debit side of trading salaries and wages
your profit and loss debit office
expense P&L trading expense will be in
trading factory expenses will be in
trading debit carry it in words it will
be trading debit return inverse is
nothing but sales written so it will be
netted with sales discount allowed it
will appear in P&L debate then
Commission is going to be paying a
little bit store cousin asset but we
have to understand this is opening stock
because closing stock will not find
plays in TB because it's an adjustment
item
okay then income tax let's say it's a
tax paid on the business income okay
then cash in hand is an asset it will
not find plays in your trading or P&L so
that's one item which we have to exclude
then if you look at sales it will appear
in trading credit written outward is
nothing but purchase written so it will
be netted with purchases discount recede
will appear in credit off P&L interest
received again create of P&L but capital
will appear in liability it will not
find plays in trading or pn double fine
so let's capture item by item so to so
here we have the structure trading and
profit and loss account of mr. john for
the year ending 31st december 2002 debit
credit everything so let's get started
with opening stock two openings talked
what is the amount opening stock do we
have that yes we have it here to opening
stock as 60,000
then let's try to capture items related
to trading a goal we have this purchases
file at 40,000 we'll have it in in a
column two purchases five lakh forty
thousand why in a column because there
is a purchase written so where is the
perch is written here we have written
outward of twelve thousand so less they
say return outward how much is it twelve
thousand so we are going to have net
purchases five lakh forty thousand a
five lakh forty thousand - twelve
thousand which is five lakh twenty eight
thousand so that is taken care then what
are the other items we have salaries
related to Pina let's try to capture the
item related to trading first offers the
end of trading expenses eight thousand
so we will say to trading expenses blue
trading expenses eight thousand then we
have factory expenses eleven thousand to
factory expenses down thousand then we
have carriers in words of eight thousand
so to carry eight in words of a thousand
then we have returns in work this is
linked with sales okay so we'll take
care of it when we pick up sales so we
don't have other items related to
trading so going to credit side we have
sales of ten lakh forty thousand let's
capture by sales which is ten lakh forty
thousand less return in words
let's return in words what was the
amount returned in words we have here
twelve thousand right so it is same like
this twelve thousand so what is the net
sales trend lakh forty thousand minus
twelve thousand that is ten lakh twenty
eight thousand
any other item appearing on credit
probably we have one adjustment
somewhere over here we have closing
stock that is valued at one lakh 35,000
so that will appear on credit of trading
so we will say by closing stock which is
one lakh thirty five thousand so now
we'll try to see in which side we have
higher total let me do the totaling obly
yeah till here on credit side total is
lovin like 63,000 on debit side the six
like 15 so great side we have higher
total so this should be totaled let me
put it fine now we have to find out in
which side when what is the balancing
figure because we know the balancing
figure is own debit side so 11 lakh
63,000 minus some of our items and it is
five lakh forty eight thousand so this
is nothing but the gross profit right to
gross profit say to gross profit carry
down and it is transferred to P&L
account debit right it is transferred to
profit and loss account so we'll go to
profit and loss account will say by
trading or base I'm sorry by gross
profit which is brought down basically
transferred from trading account is
transferred from trading account and
what was the amount there's five lakh
forty eight thousand then we'll try to
capture all items related to profit and
loss account so here we have salaries
and wages three lakh fifty thousand
let's capture two salaries and wages to
salaries and wages how much three lakh
cow fifty thousand then we have office
expenses four thousand to office
expenses it's four thousand then we have
trading expenses covered factory covered
carriage inwards
returns everything covered discount
allowed 4000 so we'll say to discount
allowed it's a four thousand then we
have commission of two thousand will say
to commission of two thousand then stock
we have covered income tax yes we can
provide for that to income tax okay
assuming it's a tax on this profit
it's forty thousand then cash in hand is
an asset it will not appear then here
sales written out words covered discount
receive it can be taken to create of P&L
so here we'll say by discount received
how much it is six thousand then some
interest is also received by interest
received three thousand so by interest
received it's three thousand so now it's
time for us to find out the total and
net profit so let's do the totalling
we'll see which side we have higher
total so on credit side we have five
lakh or fifty seven thousand on debit
side we have four lakh so we have to
follow credit it is five lakh fifty
thousand so on debit side there is a
difference Phi like fifty seven thousand
- some of these items how much 1 lakh
57,000 this one lakh 57,000 is nothing
but net profit so this net profit will
be transferred to capital account okay
so in this way we have prepared the
trading and profit and loss account off
the stage John for the year ending 31st
December 2002 so here we have to note
one or two items if you notice this
problem has something called trading
expenses and office expenses so
trading expenses will appear in trading
and office expenses will appear in
office account then this problem has
breakup I mean this problem has an item
called salaries and wages we know wages
will appear in trading account but why
we have taken salaries and wages in
profit and loss account for that if
information is available as wages and
salaries we'll take it to trading
account if it is available as salaries
and wages then then we have to assume
that the major portion is salary so it
will be taken to profit and loss account
fine