Download - Acc week 5 a
Net Profit
Gross profit is not the actual profit of the business.
The real profit of the business is the amount which remains after deduction of operating expenses.
Net Profit = Gross Profit – Operating Net Profit = Gross Profit – Operating ExpensesExpenses
Preparation of the Profit and Loss Account
Gross profit/(loss) is brought down from the Trading Account to the credit/(debit) side the P&L Account.
Expenses accounts are closed and balances transferred to the debit side of the P&L Account.
Revenue accounts are closed and balances transferred to the credit side of the P&L Account.
(Revenue + Gross Profit) > Expenses = Net Profit (Revenue + Gross Profit) < Expenses = Net Loss
Preparation of the Profit and Loss Account
Dr Wages Account Cr
2002 $ 2002 $
Jul 27 Bank 600 Jul 31 Profit & Loss 600
Dr Interest Revenue Cr
Jul 31 Profit & Loss 850 Jul 15 Bank 850
Dr Profit & Loss A/C for the month ended 31 July 2002 Cr
Wages 600 Gross profit b/d 1,000
Net Profit 1,250 Interest revenue 850
1,850 1,850
P&L Account: Example
C. Ben, a trader, earned a gross profit of RM12,500 during the year ended 31 December 2002. His operating expenses and other revenue earned for the period were as follows:
RM
Transport 850
Rent expenses 4,500
Insurance on shop 345
Sundry expenses 125
Commission revenue 2,000
Interest revenue 466
P&L Account: Example
Dr Profit & Loss A/C for the year ended 31 Dec 2002 Cr
RM RM
Transport 850 Gross profit b/d 12,500
Rent expenses 4,500 Commission revenue 2,000
Insurance on shop 345 Interest revenue 466
Sundry expenses 125
Net profit 9,146
14,966 14,966
Dr Capital Account Cr
Jan 1 Balance 15,000
Dec 31 Net profit 9,146
Net Loss: Example
L. Huang started a trading business on 1 August 2002 by investing RM14,000 in cash. During the first six months of operations, he made a gross profit of RM3,700. His operating expenses during the same period included rent expenses RM1,800, wages RM2,800 and commission expenses RM500. Revenue in the form of rent earned amounted to RM640.
Net Loss: Example
Dr Profit & Loss A/C for the year ended 31 Jan 2003 Cr
RM RM
Rent expenses 1,800 Gross profit b/d 3,700
Wages 2,800 Rent revenue 640
Commission expense 500 Net loss 760
5,100 5,100
Dr Capital Account Cr
2003 2002
Jan 31 Net loss 760 Aug 1 Cash 14,000
Balance c/d 13,240
Lecture Exercise
1. Wong & Leong Consultants had the following account balances extracted from their books as at 31st December 2002:
RM
Consulting Revenue 80,000
Salaries Expense 40,000
Rent Expense 6,000
Telephone Expense 2,000
Advertising Expense 500Prepare the Profit & Loss Account for the year ended 31st December 2002.
(Net Profit $31,500)
Dr Cr
RM RM
Salary expenses
Rent expenses
40,000 Consulting revenue 80,000
Telephone expenses 2,000
Advertising expense
Net profit
500
31,500
80,000 80,000
Dr Capital Account Cr
2002 RM
Dec 31 Net profit 31,500
Wong & Leong ConsultantProfit & Loss Account For the year ended 31 December 2008
6,000
RM RMConsulting revenue 80,000
Less: ExpensesSalary 40,000 Rent 6,000 Telephone 2,000 Advertising 500 (48,500) Net profit 31,500
Profit and Loss Acount For the year ended 31 December 2008
Wong and Leong Consultant
Lecture Exercise
2. Prepare the Profit & Loss Account for the year ended 31 July 2002 from the following information:
$
Carriage Outwards 440
Rent received from sub tenant 1,200
Advertising expense 250
Wages and salaries 2,160
Sundry expense 195
Gross loss b/d 1,780
(Net Loss $3,625)
Trading and Profit & Loss Accounts in a Combined Account
Trading and Profit and Loss Accounts can be shown under one combined heading, with the Trading Account being the top section and the Profit &
Loss Account being the
lower section of this
combined account.
Horizontal Format
Vertical Format
As you can see from the earlier slides, a Trading and Profit and Loss Account can also be called an Income Statement.
As you can see from the earlier slides, a Trading and Profit and Loss Account can also be called an Income Statement.