Answer to Question #133103 in Accounting for Thobile Ntombela

Question

How do I draw up a trading account and profit and loss account?

Answer 1

A trading Account is an account that is prepared by the entities in order to determine the profit earned or loss suffered from trading activities which they carry out, these entities can either be manufacturing or non-manufacturing. This account is prepared to ascertain gross profit for a given period.The account consists of two sides; debit side indicates direct expenses and credit side is for direct incomes. Below is a sample format on how a trading account should be like.

  Profit & Loss account is an account created to ascertain the net profit or loss for the period in practice.The P & L account is prepared after the preparation of trading account, with the help of trial balance. The balance of trading account is transferred to this account, which acts as the initial point, after which all expenses and losses are debited, and all incomes and gains are credited to this account. Below is a sample format on how a profit and loss account should look like.