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TARIQ HASSAN
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j × the end of the lesson, students should be

able to: -
j Understand and construct a Trading Profit & Loss
Account
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j All companies or corporations must provide a
set of final accounts consisting of the
following: -
j Profit and Loss Account
j ×alance Sheet
j Cash Flow Statement
j Which stakeholders do ou think would be
interested in a compan
s final accounts?
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j This is a financial statement of a firms trading
over a period of time (usuall a ear).
j There are three sections to a P&L Account.
j Trading Profit and Loss Account
j Profit and Loss Account
j Appropriation Account
j Also known as Income Statements

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j This account represents the top of the P&L
account. It shows the difference in sales
revenue and the direct costs of trading. It
shows the gross profit of a business.

j Gross Profit = Sales Revenue ± Cost of Goods Sold

j Cost of sales = opening stock + purchases ± closing

stock
 [   


Trading Account for Compan Y for Year Ended 31st December
2008
Sales 3600





Opening Stock 1000

Purchases 2000

Closing Stock 1800

1200



Ô 2400
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Ô
j Use cheaper suppliers
j Increase the selling price
j Use marketing strategies
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j This account shows the operating profit and
net profit of the business.
j The gross profit figure is used to deduct all
expenses to calculate the operating profit.

j Operating Profit= Gross Profit - Expenses

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j Administration charges
j Utilit bills
j Insurance
j Interest on bank loans
j Marketing costs
j Rent
j Management salaries
j Stationer costs
j Transport costs
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    !!"

‰ ‰


 450000



200000


Ô 250000

Less [ 

Rent 80000
Utilit bills 50000
Other overheads 30000
160000
# 
 90000
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j Reduce rent
j Heating and Lighting costs
j Reviewing administration costs

j The business ma also have non-operating income

j If the business does not have an non-operating
profit then operating profit is equal to the net profit.
j Interest pa able/ received and Corporation Tax is
shown separatel to the other expenses
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 450000



(200000)


Ô 250000

Less [ 


(160000)
# 
 90000
Plus non operating 5000
income
Ô   

 95000

 
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 (8000)

 Ô 87000
  


j This is the third part of the P&L account.
j There are three parts to this account
j Taxation
j Dividends
j Retained Profit
j The compan has no power over how much tax the
pa , however the can decide how the profits are
shared out.
j The share of profits is decided b the directors and
approved b the AGM.
j Dividends are usuall paid biannuall
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    !!"
‰
Sales Revenue 450000
Cost of sales (200000) Trading Account
Gross Profit 250000
Less expenses (160000)
Operating profit 90000
Plus non operating income 5000
Profit & Loss Account
Profit before income and tax 95000
Interest expenses (8000)
Net profit before tax 87000
Less taxation (15000)
Net profit after interest and tax 72000
Appropriation Account
Dividends 22000
Retained profit 50000
% [ 
&'
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Profit & Loss Account for Ahmed Educational ×ooks Ltd For Year Ended 31 December
2008
Year 2 (‰000) Year 1 (‰000)
Sales (a) 450
Cost of sales 200 (b)
Gross Profit 300 270
Expenses 100 90
Net Profit ×efore Interest (c) 180
& Tax
Interest Pa able 10 0
Taxation 48 (d)
Net Profit after Interest & 142 135
Tax
Dividends 10 15
Retained Profit 132 (5)
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j Historical data rather than what will happen in

the future.
j Window dressing can take place
j No standard format