The document discusses income statements and trading accounts, which are used to determine business profits. An income statement shows revenues, expenses, and net income over a period. A trading account is the first section of an income statement and calculates gross profit by subtracting the cost of goods sold from sales. It includes items like opening stock, purchases, wages, and closing stock. The second section is the profit and loss account, which calculates net profit by subtracting expenses from gross profit. Examples of expenses include salaries, rent, depreciation, interest, and bad debts. The document provides examples of how to prepare trading accounts and profit and loss accounts.

1. Sreejith S Fims 2008
Trading Profit and Loss
Account
Sreejith S

2. Sreejith S Fims 2008
Income Statement
• Statement showing the revenues,
expenses
• To know the Income generated in a period
• It depicts a business entity's financial
performance due to operations as well as
other activities

3. Sreejith S Fims 2008
Income Statement
• Trading Account
• Profit and Loss account

4. Sreejith S Fims 2008
Trading account
• First section of Income Statement
• Find out the Gross profit

5. Sreejith S Fims 2008
Gross Profit
• It is the profitability of the goods bought or
manufactured, sold by the firm
• Sales – Cost of Goods sold

6. Sreejith S Fims 2008
Cost of Goods Sold
• Opening Stock +
Purchases -
Closing Stock

7. Sreejith S Fims 2008
Trading Account for the year ended 31st
Dec
Particulars Amount Particulars Amount
To opening stock
To purchase
To Wages
To Carriage inwards
To Gross Profit
Xxxx
Xxxx
Xxx
Xxxx
xxxx
xxxxxx
By Sales
By Closing Stock
Xxx
Xxx
xxxxx
By Gross profit xxxx

8. Sreejith S Fims 2008
Opening Stock
• remained unsold stock at the end of
previous year.
• brought into books with the help of
opening entry
• in the first year of a business there will be
no opening stock

9. Sreejith S Fims 2008
Purchases
• total purchases i.e. cash plus credit
purchases
• Any return outwards (purchases return)
should be deducted out of purchases

10. Sreejith S Fims 2008
Buying Expenses
• All expenses relating to purchase of goods
are also debited in the trading account
• carriage inwards freight, duty, clearing
charges, excise duty, import duty, etc

11. Sreejith S Fims 2008
Manufacturing Expenses
• Such expenses are incurred by
businessmen to manufacture or to render
the goods in saleable condition
• motive power, gas fuel, stores, royalties,
factory expenses, foreman and
supervisor's salary etc.

12. Sreejith S Fims 2008
Sales.
• Sales mean total sales i.e. cash plus credit
sales. If there are any sales returns, these
should be deducted from sales.

13. Sreejith S Fims 2008
Closing Stock
• It is the value of stock lying unsold in the
godown or shop on the last date of
accounting period.

14. Sreejith S Fims 2008
Prepare a Trading Account
• Opening Stock 100000
• Purchases 672000
• Carriage Inwards 30000
• Wages 50000
• Sales 1100000
• Returns inwards 100000
• Return outwards 72000
• Closing Stock 200000

15. Sreejith S Fims 2008
Profit and Loss Account
• To find out the Net profit
• Difference between Operating expenses
and income

16. Sreejith S Fims 2008
Particulars Amount Particulars Amount
To salaries
To carriage outwards
To Interest on loan
To Bad debts
To Advertising
To Export Duty
To Packages
To Rent
To Commission Paid
To Depreciation
To net profit transferred
to capital account
Xxxx
Xxxx
Xxx
Xxxx
xxxx
xxxx
xxxx
xxx
xxx
xxxx
By Gross profit
By Discount received
By Commission received
By Rent received
By Interest received
By Income from
investments
By Dividend received
Xxx
Xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxxx xxxxx
Profit and Loss account for the year ended 31st
march 2008

17. Sreejith S Fims 2008
Indirect Expenses
• Selling and distribution expenses
• Administrative Expenses
• Financial Expenses
• Maintenance, depreciations and
Provisions etc.

18. Sreejith S Fims 2008
Selling and Distribution Exp
• a) Salesmen's salary and commission
• (b) Commission to agents
• (c) Freight & carriage on sales
• (d) Sales tax
• (e) Bad debts
• (f) Advertising
• (g) Packing expenses
• (h) Export duty.. etc

19. Sreejith S Fims 2008
Administrative Expenses.
• (a) Office salaries & wages
• (b) Insurance
• (c) Legal expenses
• (d) Trade expenses
• (e) Rates & taxes
• (f) Audit fees
• (g) Insurance
• (h) Rent
• (i) Printing and stationery
• (j) Postage and telegrams
• (k) Bank charges… etc

20. Sreejith S Fims 2008
Financial Expenses
• (a) Discount allowed
• (b) Interest on Capital
• (c) Interest on loan
• (d) Discount Charges on bill discounted

21. Sreejith S Fims 2008
Maintenance, depreciations and
Provisions etc
• (a) Repairs
• (b) Depreciation on assets
• (c) Provision or reserve for doubtful debts
• (d) Reserve for discount on debtors.

22. Sreejith S Fims 2008
Prepare a Profit and Loss Account
• Salaries 110000
• Legal Charges 25000
• Consultancy fee 32000
• Audit Fee 1000
• Discount Received 18000
• Electricity 17000
• Gross profit 420000
• Postage & Telegram 12000
• Stationary 27000
• Depreciation 65000
• Discount Allowed 19000
• Bad debts 17000
• Interest 70000

23. Sreejith S Fims 2008
Particulars Debit Credit
Capital
Opening Stock
Cash
Machinery
Purchases
Wages
Discount
Office Exp
Sales
Sundry Debtors
Sundry Creditors
Salary
Closing Stock Rs 2700
2000
1440
7360
18200
10000
500
6000
8500
10000
64000
10000
300
50000
3700
64000
Trial Balance on 31st
March 2008

24. Sreejith S Fims 2008

25. Sreejith S Fims 2008
Particulars Debit Credit
Capital
Purchase & Sales
Opening Stock
Debtors and Creditors
Bank Loan
Overdraft
Salaries
Advertisement
Other Exp
Returns
Furniture
Building
Cash
Closing Stock Rs 100000
605000
72000
90000
270000
110000
60000
40000
450000
890000
5000
2592000
870000
1210000
170000
200000
112000
2592000
Trial Balance on 31st
March 2008