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

let us try and prepare a profit and loss
account with this following trial
balance trial balance as on a particular
date of one mr. ramish what do we have
capital account is a balance sheet item
purchases is a trading item sales is a
trading item returned inward and outward
return inward is sales return return
outward is purchase return purchase
return would be deducted from purchases
sales return would be deducted from
sales returns salaries will go to the
profit and loss account debtors of
course is an asset creditors is a
liability they go to balance sheet
carriage in word should go to the
trading account outward to the profit
and loss account interest income profit
and loss opening stock trading account
direct expenses trading account
telephone profit and loss electricity
profit and loss investment is an asset
will go to balance sheet so will
building cash in hand and cash in fact
there was no closing storm so we have
already identified what are the items
which will go to trading account what
are the items which will go to profit
and loss account let us see how this
would be prepared
so let us leak a trading and profit and
loss account for the year ended water
- we'll start with opening stock since
it is there 50,000 - opening stock I'm
writing in short here otherwise I
wouldn't be spaced - opening stock
50,000
I've taken this two purchases is to lack
less returns - returns purchases what is
the return return outward that is 5000
so less 5000 we get 1 lakh 95,000 by
sales you have 4 lakh less returns
10,000 that is 3 lakh 90,000 so give
different purchases we've taken sales
we've taken return inward we've taken
return outward next we'll take carriage
inward to carriage inward is 5,000
carriage outward interest income opening
there are other direct expenses which is
20,000 telephone electricity investments
building so that's it that covers
everything in that trading account so
what is it that we get the total here
Keillor 90,000 so the gross profit
carried down is
you
one not 21st
like Ross profit plot down we have one
lakh twenty thousand scary form we are
making the trading and profit and loss
account together what do we have now
profit and loss two salaries so salaries
sixty thousand debtors creditors
carriage in word is done carriage
outward is ten thousand carriage outward
ten thousand interest income income so
interest income
five thousand opening stock direct
expenses telephone electricity telephone
and electricity how much is the
telephone was six thousand and
electricity was - so we should have
covered everything we taken but chases
says everything in the tea is taken
everything in the B is taken t is
trading purchase sorry carriage outward
profit and loss five thousand trading
taken profit and loss telephone at this
so we are done this should give us now
the net profit transfer to capital
account
40,000 40,000 this is how the training
and profit and loss account could be
would be prepared that is take a look at
the fair presentation of the same thing
books of Ramesh trading account for the
year ended opening stock 50,000
purchases less return is 95,000 carriage
in word what is carriage in word the
cost of carriage of bringing goods in
and what is carriage output the cost of
taking the goods out at this selling
cost so scary output is actually a
selling and distribution cost whereas
carriage in word is a part of the
purchase cost of the entire cost we had
direct expenses sales less return 3 like
90 so that we got a gross profit which
is a balancing figure transferred to
profit and loss account this is the
profit and loss account by gross profit
front down interest earned salaries
electricity telephone charges carriage
out worth carriage outward I repeat what
is carriage out what the the cabbage in
sending the goods or by selling the
goods the carriage cost which are incur
that is carriage output so carriage
inward and carriage output on both
expenses but carriage inward relates to
purchases and therefore shown in the
trading account carriage outward relates
to sales for sending that the carriage
cost for sending the goods out selling
the goods and therefore that is a profit
and loss account item the balancing
figure here is net profit 40000
transferred to capital account in total
completely this is how it would look
books trading and profit and loss upon a
much neater presentation here opening
stock purchase less return carriage
inward direct expenses say is less
returns it's a gross profit being
brought down here on like 20,000
interest on was another income other
expenses what are these are all the
operating expenses 40,000
is the profit taken to capital account
so this is how trading and profit and
loss account or this is what is called
the income statement based prepared to
ascertain the gross profit and the net
profit net profit is ultimately
transferred to the capital account net
profit is added to the capital the
capital of the owners the capital of the
owner will increase the money belong to
the owner the net worth of the business
will increase when there is a profit it
will reduce if there is a loss