Components of profit and loss account, Accounting Basics

Components of Profit and Loss Account

The Profit & Loss Account intend to check profit. It has three parts.

1) The Trading Account:

These account the money in (revenue) and out (costs) of the business as a result of the business' 'trading' i.e. selling and buying. This may be buying raw materials and selling refined goods; it might be buying goods wholesale and selling them retail. The amount at the conclusion of this section is the Gross Profit.

2) The Profit and Loss Account:

This begins with the Gross Profit and adds to it any additional costs and revenues, as well as overheads. These additional costs and revenues may be in the nature of additional operating, administrative, selling and distribution expenses.  This account also comprises expenses which are as of any other actions not directly related to trading (non-operating). An instance is interest on investments. Therefore, loss and profit account restrain all other expenses and losses, incomes and gains of the business for the accounting year for which financial statements are being organized.  In this procedure, it follows the merchant basis of accounting (that is, it takes into account all paid and payable expenses, and received and receivable receipts).  The net effect of profit and loss account is called as net profit.  The key characteristic of profit and loss account is that it takes into account all expenses and incomes that fit in to the current accounting year and eliminate those expenses and incomes that fit in either to the earlier period or the future period.

3) The Appropriation Account.

This shows how the profit is 'appropriated' or divided among the three uses stated above.

Introduction to Trading account:

A Trading account is a declaration prepared by a firm to determine its trading results for the accounting year. Identical to Profit & Loss account, it is also arranged for the year ending. It takes into account a variety of trading everyday expenditure (regularly all direct expenses) and incomes. The gross result will be either trading / gross loss or gross profit. In terms of a developed concern, it will organize an additional statement called a manufacturing account. A manufacturing account is arranged by a producer to ascertain the cost of goods manufactured through the existing accounting year.

Format of manufacturing account manufacturing account of ABC. Ltd

 1482_trading account.png

Posted Date: 10/15/2012 5:26:38 AM | Location : United States







Related Discussions:- Components of profit and loss account, Assignment Help, Ask Question on Components of profit and loss account, Get Answer, Expert's Help, Components of profit and loss account Discussions

Write discussion on Components of profit and loss account
Your posts are moderated
Related Questions
Gwinnett Park Co. reported net income of $506,600 for its fiscal year ended September 30, 2014 . At the beginning of that year, 150,000 shares of common stock were outstanding. On

A bond sinking fund investment is started on January 5, 2010, by transferring $10,000 in cash to the fund. This $10,000 is invested and earns $1,100 during 2010. The entry to rec

Q. Example of Electronic spreadsheets? Electronic spreadsheets have many applications in accounting. An electronic spreadsheet is basically a large blank page that contains row

Question : The several evaluative criteria for evaluating revenue measure or system are: ? Yield ? Political expediency ? Ease of administration ? Consistency

Draw a stem-and-leaf plot for the data set. (Enter numbers from smallest to largest separated by spaces. Enter NONE for stems with no values.) Data set A: The annual wages of emp

ledger is said to be the principal book entry and the transactions can even be directly entered into the ledger account. elaborate on the statement and explain why journal is neces

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $673,400, and Allowance for Doubtful Accounts has a balance of $11,90

If you can earn 4 percent, how much will you have to save each year if you want to retire in 35 years with $ 1 million?

If on the opening day of business, you put in supplies worth $250 and $3000 cash, would that be considered a transaction OR would it be considered your beginning balances because