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Trading A/C

For the years ending … … …
Dr. Cr.

Particulars Amount Rs. Particulars Amount Rs
To Ppening stock 16000 By Sales 351200

Less: return 1200 350000
To Purchases 200950

Less returns 950 200000

To Carriage in 3500

To Wages 4500
To Coal and gas 10,500

To Factory rent 3000

To Grass profit 1,12,500
350000 350000

Profit and loss account

Profit and loss account is prepared to ascertain net profit earned or net loss suffered
by the business during a given period of time. There are certain items of incomes and
expenses of the business which must be taken into consideration for calculation of net
profit of a business. The balance of trading account is taken to profit and loss account.
Then profit and loss account is credited with all indirect incomes and debited with all
indirect expenses.

The profit and loss account measures profitability of a firm or business by matching
revenues and expenses according to the accounting principles. Net income is the
excess of income over expenditure and if expenses exceed income, that is termed as
loss.

When net profit or net loss is ascertained, it is transferred to balance sheet. If net profit
is made, it is added to capital and if net loss occurs, it is deducted from capital in the
liabilities side of the balance sheet.
Objective/Purpose

The objectives of profit and loss account are as follows:

1. To determine the net profit or net loss made during the year by a business

90 Office Practice and Accounting 10