1. Press Esc to exit programme at any time Profit & Loss Accounts The calculation of profit and loss is one of the most important objectives of accounting and shows how well a business has traded over a particular period of time. Many stakeholders will be interested in this. It shows how much the firm has earned from selling its product or service, and how much it has paid out in costs. The difference between these two is the amount of profit that has been earned. A profit & loss account shows the detail.

2. Press Esc to exit programme at any time Trading and Profit & Loss Account: An Introduction Objectives On completing this unit, you should be able to: 1.Understand the difference between gross profit & net profit 2.Be able to draw up a Trading & Profit and Loss account from information given in a Trial Balance Approximate study time 60 minutes Click here to start here Learning Objectives

3. Press Esc to exit programme at any time Sales The trading and profit & loss account is used by businesses to compare actual profits with expected profits. In most trading organisations it is important to see how much profit is made before additional expenses are deducted. This is known as Gross Profit. Net Profit is the value left once labour costs and additional expenses or overheads are deducted from the Gross Profit figure. Gross Profit therefore represents the difference between the sales and the cost of the goods sold. Gross Profit Cost of Sales Labour Costs Overheads Net Profit In the diagram below the whole pie or complete circle represents the TOTAL SALES

4. Press Esc to exit programme at any time Gross Profit Overheads Labour Costs Net Profit Sales less gross profit, labour costs and overheads = Net Profit Labour Costs Overheads Net Profit Overheads Net Profit In the diagram above the whole pie or complete circle represents the TOTAL SALES

5. Press Esc to exit programme at any time The Trading and Profit & Loss account is split into 2 sections: The Trading Account – in which the GROSS profit is calculated & The Profit & Loss Account – in which the NET profit is calculated

6. Press Esc to exit programme at any time enter the sales figure here enter purchases here enter closing stock & add to purchases deduct the total from the sales figure to calculate the Gross Profit enter the labour costs enter any other expenses, total them, add them to the labour costs and deduct the total from the gross profit This leaves the Net Profit

7. Press Esc to exit programme at any time Not every account in a company’s Trial Balance will appear in the trading and profit & loss account only the balances of costs and revenues are used. Have a look at his diagram. It shows the Trial Balance for a firm and identifies the balances that will be used to calculate profits in the trading and profit & loss account. The closing stock figure will also be needed. Now you have a go – click here click hereclick here

8. Press Esc to exit programme at any time Activity Sheet The links below will open a number of exercises for you to complete. Each exercise should be returned as instructed by your tutor. To take another look through the learning materials – click here click here click here To see the demonstration on how to complete the Trading and Profit & Loss Account – click here click here click here To open the activity sheet – click here click hereclick here

9. Press Esc to exit programme at any time enter the sales figure here enter purchases here enter closing stock & add to purchases deduct the total from the sales figure to calculate the Gross Profit enter the labour costs enter any other expenses, total them, add them to the labour costs and deduct the total from the gross profit This leaves the Net Profit