1. Chapter 17 – Trading Account, Profit and Loss Account and Closing Entries
Learning Outcome
This chapter shows how to prepare, for a sole trader, General journal closing entries, and to complete Trading and Profit and Loss accounts and a Balance Sheet.
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

2. KEY TERMS Cost of goods sold Closing entries Gross profit or loss
Net profit or loss
Profit and loss account
Trading account
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

3. DEFINITIONS Cost of goods sold Closing entries
Direct cost of buying and preparing trading stock for sale
Closing entries
General journal entries to close all Revenue and Expense accounts to Trading and Profit and loss
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

4. DEFINITIONS cont… Gross profit (loss) Net profit
Result of trading operations
Net profit
Result of all operating activities in Profit and loss account
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

5. TRADING ACCOUNT TRADING ACCOUNT
Contains all revenue and expenses relating to getting goods ready for sale
Records opening and closing inventories amounts for the period
Calculates gross profit
TRADING ACCOUNT
Result in Gross Profit or Loss for Period
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

6. TRADING ACCOUNT cont…
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

7. PROFIT AND LOSS ACCOUNT
Profit and loss account shows:
gross profit from trading
other revenues
expenses of operating the business during current period
Calculates net profit or loss for period
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

8. PROFIT AND LOSS ACCOUNT cont…
Profits or losses belong to the owner of the business and are transferred by closing entry to Equity on the Balance Sheet.
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

9. PROFIT AND LOSS ACCOUNT cont…
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

10. INCOME STATEMENT
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

11. DRAWINGS Drawings is a separate account in the Equity account.
Records amounts taken from the business by owner.
Drawings is closed to Equity at end of year.
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

12. DRAWINGS cont…
Drawings are not a business expense and are recorded in the Equity section of the ledger accounts.
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson