ACCOUNTING BASICS

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WHAT IS TRADING ACCOUNT

IT DENOTES INCOME AND EXPENDITURE

THE ITEMS INCLUDED IN IT ARE : 1.
SALES 2. PRODUCTION EXPENDITURE 3.
FACTORY EXPENDITURE 4. GROSS
PROFIT OR GROSS LOSS.

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 WHAT IS P & L ACCOUNT
IT IS PREPARED AFTER TRADING
ACCOUNT. IT INCLUDES FOLLOWING
ITEMS :
1. EXPENDITURE – OTHER THAN
FACTORY OR PRODUCTION RELATED
EXPENDITURE 2. REVENUE OTHER THAN
SALES
IF YOU ARE NOT PREPARING TRADING
ACCOUNT, THAN ALL THOSE ITEMS WILL
COME IN P & L ACCOUNT.
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WHEN TRADING ACCOUNT IS
NOT PREPARED?

WHEN THE FIRM IS HAVING NO

PRODUCTION ACTIVITIES – LIKE
SERVICE UNITS – THE COMPANY MAY
NOT PREPARE TRADING ACCOUNT. ALL
REVENUE AND EXPENDITURE WILL GO
TO P & L ACCOUNT

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 EXAMPLE

PREPARE TRADING ACCOUNT FROM

THE FOLLOWING INFORMATION:
PURCHASE 100, WAGES : 100, OTHER
EXP. 20 SALES : 500 OPENING STOCK :
100 CLOSING STOCK : 70

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 SOLUTION

DEBIT AMOUNT CREDIT  AMOUNT

OPENING STOCK 100
PURCHASE  100 SALES  500
WAGES 100 CLOSING STOCK 70
OTHER EXP 20

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 TIPS

DEBIT BALANCE ITEMS : (ALL

EXPENDITURE, PURCHASE, GROSS
PROFIT, OPENING STOCK ETC. )
CREDIT SIDE ITEMS : (SALES AND OTHER
SUCH REVENUE, CLOSING STOCK).

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EXAMPLE OF P&L ACCOUNT

PREPARE P&L ACCOUNT FROM

FOLLOWING :
GROSS PROFIT : 250, INTEREST
RECEIVEED : 120, COMMISSION
RECEIVEED : 30, SALARY : 100, POSTAGE
: 10, RENT : 20, OTHER EXPENDITURE :
20, DEPRECIATION : 50

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 SOLUTION

TOTAL  200 TOTAL  400

NET PROFIT 200
TOTAL  400

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 TIPS

DEBIT SIDE ITEMS : ALL EXPENDITURE,

DEPRECIATION, OUTSTANDING
EXPENDITURE (EXP. WHICH IS DUE BUT
NOT PAID),
CREDIT SIDE ITEMS : ALL INCOME,
ACRUED INCOME (INCOME WHICH IS
DUE BUT NOT YET RECEIVED)

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 ADJUSTMENTS REQUIRED

CALCULATE DEPRECIATION CAREFULLY

ADJUST FOR PREPAID AND
OUTSTANDING EXPENDITURE, ACRUED
INCOME AND INCOME RECEIVED IN
ADVANCE

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