Trading accounts and profit&loss a/c
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
25 August 2013
difference between trading a/c & profit loss a/c and balance sheet please tell me short cut forms
25 August 2013
Trading Account:
Trading account is an account which is prepared for ascertaining the overall result of trading i.e. buying and selling of goods. Ascertainment of overall result of trading is the ascertainment of gross profit earned or gross loss incurred as a result of the trading activities by a business during a particular accounting period.
If the amount of sales exceeds the amount of purchases and the expenses directly connected with such purchases, the difference is termed as gross profit. On the contrary, if the purchases and direct expenses exceed the sales, the difference is called gross loss.
All expenses which relate to either purchase of raw material or manufacturing of goods, called ‘Direct Expenses’, which are recorded in the Trading Account. Thus, trading account is a part of Income Statement.
Profit & Loss Account:
A Profit and Loss Account starts with the amount of gross profit or gross loss brought down from the Trading Account. As such, all those expenses and losses which have not been debited to the Trading Account will now be debited to Profit & Loss Account. Profit and Loss Account is a Nominal Account and as such, all the expenses and losses are shown on its debit side and all the incomes and gains are shown on the credit side of this account.
These expenses are incidental to carrying on business; these are called ‘Indirect Expenses’. and are broadly grouped under three categories of expenses; viz.
a) Administrative Expenses which include Salaries to Staff, Office Rent, Printing and Stationery etc.
b) Financial Expenses which include Interest on Loan, etc.
c) Selling and Distribution Expenses which include Carriage Outward, Advertisement, etc.
If the credit total is heavier, the difference is called Net Profit and if the debit total is heavier, the difference is called Net Loss.
Balance Sheet:
At the end of the accounting year, a trader naturally desires to know two things viz.
(a) The results of his trading operation for the period and;
(b) His true financial position at the end of the period.
In order to ascertain the financial results, he prepares Trading and Profit and Loss Account. The Trading Account shows gross profit while the Profit and Loss Account shows the net profit. After ascertaining net profit, the businessman desires to know his financial position and the correctness of his net profit disclosed by the Profit and Loss Account. As assets and liabilities continuously change during the operation of the business, he is also interested in knowing the composition of various assets and liabilities and the amount of capital standing at the end of the period. In order to obtain this information at the end of a trading period, a businessman sets out various assets and liabilities as on that date in the form of a statement which is known as Balance Sheet.
Definition of Balance Sheet:
According to CARTER ‘A Balance Sheet is a statement drawn up at the end of each trading or financial period, setting forth the various assets and liabilities of the concern as at this date.
However, it is also described as a classified summary of debit and credit balances existing in the ledger after the Profit and Loss Account that has been constructed. This is a better definition because it often contains items which are not either assets or liabilities. It is prepared with a view to measure the exact financial position on a certain fixed date. So it is also called a ‘Position Statement’.
Trading account is an account which is prepared for ascertaining the overall result of trading i.e. buying and selling of goods. Ascertainment of overall result of trading is the ascertainment of gross profit earned or gross loss incurred as a result of the trading activities by a business during a particular accounting period.
If the amount of sales exceeds the amount of purchases and the expenses directly connected with such purchases, the difference is termed as gross profit. On the contrary, if the purchases and direct expenses exceed the sales, the difference is called gross loss.
All expenses which relate to either purchase of raw material or manufacturing of goods, called ‘Direct Expenses’, which are recorded in the Trading Account. Thus, trading account is a part of Income Statement.
Profit & Loss Account:
A Profit and Loss Account starts with the amount of gross profit or gross loss brought down from the Trading Account. As such, all those expenses and losses which have not been debited to the Trading Account will now be debited to Profit & Loss Account. Profit and Loss Account is a Nominal Account and as such, all the expenses and losses are shown on its debit side and all the incomes and gains are shown on the credit side of this account.
These expenses are incidental to carrying on business; these are called ‘Indirect Expenses’. and are broadly grouped under three categories of expenses; viz.
a) Administrative Expenses which include Salaries to Staff, Office Rent, Printing and Stationery etc.
b) Financial Expenses which include Interest on Loan, etc.
c) Selling and Distribution Expenses which include Carriage Outward, Advertisement, etc.
If the credit total is heavier, the difference is called Net Profit and if the debit total is heavier, the difference is called Net Loss.
Balance Sheet:
At the end of the accounting year, a trader naturally desires to know two things viz.
(a) The results of his trading operation for the period and;
(b) His true financial position at the end of the period.
In order to ascertain the financial results, he prepares Trading and Profit and Loss Account. The Trading Account shows gross profit while the Profit and Loss Account shows the net profit. After ascertaining net profit, the businessman desires to know his financial position and the correctness of his net profit disclosed by the Profit and Loss Account. As assets and liabilities continuously change during the operation of the business, he is also interested in knowing the composition of various assets and liabilities and the amount of capital standing at the end of the period. In order to obtain this information at the end of a trading period, a businessman sets out various assets and liabilities as on that date in the form of a statement which is known as Balance Sheet.
Definition of Balance Sheet:
According to CARTER ‘A Balance Sheet is a statement drawn up at the end of each trading or financial period, setting forth the various assets and liabilities of the concern as at this date.
However, it is also described as a classified summary of debit and credit balances existing in the ledger after the Profit and Loss Account that has been constructed. This is a better definition because it often contains items which are not either assets or liabilities. It is prepared with a view to measure the exact financial position on a certain fixed date. So it is also called a ‘Position Statement’.
Message likes :
1 times
25 August 2013
Also check out below link for details:
http://www.kkhsou.in/main/management/final_accounts.html
http://www.kkhsou.in/main/management/final_accounts.html
Message likes :
1 times
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Credit rating model
- 115-BAC-for AOP-private discretionary trust
- IN PAGHDI SYSTERM . RENT RECPT CHANGE OF NAME AFTER FAMILY PARENTS TO SON
- Insurance make against any item and later get insurance claim received
- Youtube income
- GST APPEAL ITC
- If Material shift from dry port local egm details not refleting on ICE gate portal
- ITR-U for AY21-22
- Requirement of Form 15CA CB - Rent payment
- Surcharge on discretionary AOP/TRUST for AY 25-26
- Common service
- Query regarding applicability of UDIN on MCA forms signed using DSC by a Chartered Accountant
- GST ON PERSONAL MOTORCAR SOLD
- Cash gift by grand mother to her grand daughter
- APPLICABILITY OF RCM ON MAN POWER SUPPLY BY UN REGISTERED PERSON TO REGISTERED PERSON.
- Tax amount diff in Gstr1 and 3B in tax compare reports
- Spice form, ? mark comes in address
- Tds on GST in connection with sale to public company
- B2B Amendment
- Restoration of certificate of practice
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
CAclubindia
