Examples of Trading and Profit and Loss

Account and Balance Sheet:

Learning Objectives:

1. Prepare trading and profit and loss account and balance sheet.

Example 1:
From the following balances extracted from the books of X & Co., prepare a trading and
profit and loss account and balance sheet on 31st December, 1991.

  $   $
Stock on 1st January 11,000 Returns outwards 500
Bills receivables 4,500 Trade expenses 200
Purchases 39,000 Office fixtures 1,000
Wages 2,800 Cash in hand 500
Insurance 700 Cash at bank 4,750
Sundry debtors 30,000 Tent and taxes 1,100
Carriage inwards 800 Carriage outwards 1,450
Commission (Dr.) 800 Sales 60,000
Interest on capital 700 Bills payable 3,000
Stationary 450 Creditors 19,650
Returns inwards 1,300 Capital 17,900

The stock on 21st December, 1991 was valued at $25,000.

Solution:
X & Co.
Trading and Profit and Loss Account
For the year ended 31st December, 1991

To Opening stock   11,000 |By Sales 60,000  

    Less
To Purchases 39,000   |
returns i/w
1,300  
    Less returns o/w 500   |  58,700
By Closing
  38,500 |
stock
  25,000
To Carriage inwards   800 |     
To Wages   2,800 |     
To Gross profit c/d   30,600 |     
    |   
    83,700 |    83,700
    |   
To Stationary   450 |By Gross   30,600
 profit b/d
To Rent and rates   1,100 |     
To Carriage
outwards
  1,450 |     
To Insurance   700 |     
To Trade expenses   200 |     
To Commission   800 |     
To Interest on
capital
  700 |     
To Net profit |
transferred to   25,200      
capital a/c |

    |   
    30,600 |    30,600
    |   

X & Co.
Balance Sheet
As at 31st December, 1991

Liabilities $ | Assets $
|
Creditors   19,650 Cash in hand 500
|
Bills payable   3,000 Cash at bank 4,750
|
Capital 17,900   Sundry debtors 30,000
|
Add Net profit 25,200   Bill receivable 4,500
|
  43,100 Stock 25,000
|
      Office equipment 1,000
|
     
|
    65,750   65,750
|
     

Example 2:
The following trial balance was taken from the books of Habib-ur-Rehman on December 31,
19 ....

Cash 13,000
Sundry debtors 10,000  
Bill receivable 8,500  
Opening stock 45,000  
Building 50,000  
Furniture and fittings 10,000  
Investment (Temporary) 5,000  
Plant and Machinery 15,500  
Bills payable   9,000
Sundry creditors   20,000
Habib's capital   78,200
Habib's drawings 1,000  
Sales   100,000
Sales discount 400  
Purchases 30,000  
Freight in 1,000  
Purchase discount   500
Sales salary expenses 5,000  
Advertising expenses 4,000  
Miscellaneous sales expenses 500  
Office salary expenses 8,000  
Misc. general expenses 1,000  
Interest income   1,000
Interest expenses 800  
 
  2,08,700 2,08,700

Closing stock on December 31, 19 ... was $10,000

Required: Prepare income statement/trading and profit and loss account and balance sheet
from the above trial balance in report form.

Solution:

Habib-ur-Rehman
Income Statement/Profit and Loss Account
For the year ended December 31, 19.....

Gross sales   100,000  

Less: Sales discount   400  
         
Net Sales     99,600

Cost of Goods Sold:

     
Opening stock   45,000  
Purchases 30,000    
Add: Freight in 1,000    
     
  31,000    
Less purchase discount 500    
     
Net purchases   30,500  
     
Cost of goods available fort sale   75,500  
Less closing stock   10,000  
     
Cost of goods sold     65,500
     
Gross profit     34,100

Operating Expenses:
     
Selling Expenses:      
   Sales salary expenses 5,000    
   Advertising expenses 4,000    
   Misc. selling expenses 500    
  9,500  
General Expense:      
   Office salaries expenses 8,000    
   Misc. general expenses 1,000    
  9,000  
     
Total operating expenses     18,500
     
Net profit from operations     15,600

Other Expenses and Incomes:

     
Interest income 1,000    
Interest expenses 800    
     
Net increase     200
     
Net income     15,800
     

Habib-ur-Rehman
Balance Sheet
As at December 31, 19.....

ASSETS    
   Current Assets:    
      Cash 13,000  
      Sundry debtors 10,000  
      Bills receivable 8,500  
      Stock on Dec. 31, 19 .. 10,000  
      Investment 5,000  
   
         Total Current Assets   46,500
   Fixed Assets:    
      Buildings 50,000  
      Plant and Machinery 15,500  
      Furniture and fittings 10,000  
   
         Total Fixed Assets   75,500
   
         Total Assets   122,000
   
     
LIABILITIES:    
   Current Liabilities:    
      Sundry creditors 20,000  
      Bills payable 9,000  
   
         Total Current Liabilities   29,000
   Fixed Liabilities:    
      Habib's capital 78,200  
      Net income for the year 15,800  
   
  94,000  
      Less: Drawings 1,000  
  93,000
   
      Total Liabilities and Capital   122,000