Trading, Profit and Lost

Statement
Accounts for Non Accounting Students
(K 07)
By: R.A.R.G. Ranaweera

Recap

Basic Equation in Accounting

A = L + [ C + (R E) D ]
Effects of transactions on expanded
accounting equation
Double Entry System and Basic rules
How to record transactions in double
entry system
Basic idea about Trial Balance

Check your learning

Show how we record giving a 10%

discount for a Debtor who payed Rs.
10000
Show how we record a payment of Rs.
10000 to a creditor. A 20% discount
was given by the creditor to the firm.
Show how we record a Purchase return
worth of Rs. 500 which we already
paid in cash

Show how we record a Sales return

worth of Rs. 500 which we already
paid in cash

Solutions

Case 01
Cr Debtor account by Rs. 10000
Dr Discount Allowed account by Rs.
1000
Dr Cash account by Rs. 9000

Case 02
Dr Creditor account by Rs. 10000
Cr Cash account by Rs. 8000
Cr Discount Received by Rs. 2000

Case 03
Cr Purchase Returns and
Allowances account by Rs. 500
Dr Cash account by Rs. 500

Case 04
Dr Sales Return and Allowances
account by Rs. 500
Cr Cash account by Rs. 500

Trial Balance (Question)

Edward started a new business on 01/01/2007

Commenced with Rs. 10000 in cash
Paid Rs. 8000 in to a business bank account
Bought a van on credit from Perkins for Rs.3000
Rented a shop. Rent Rs. 1000 per quarter. Paid rent
for first quarter immediately by a cheque
Bought goods on credit from Roy for Rs. 4000
Paid shop expenses amounting Rs. 1500 by cheque
Sold goods on credit to Scott for Rs. 3000
Settled parkins account by a cheque
Received a cheque from Scott for Rs. 2000 and
immediately banked

Send a cheque to Roy for Rs. 500

Purchased goods on credit from Roy for Rs. 3000
Cash sales of the month amounted to Rs. 2000

Prepare
1. Trial Balance as at 31/01/2008

Trial Balance Confirms (if

balanced)

For a every credit entry there appear

to be a debit entry and wise versa
Values for each entry has been
entered in appropriate accounts
Accounts have been balanced,
extracted and entered correctly in to
the trial balance

Trial Balance Errors

Omission a completely missed transaction in

recording process

Complete reversal of entry

Dr Cash / Cr Debtors instead of
Cr Cash / Dr Debtors

Principal entered in to a wrong type of account

(enter a purchasing a van in to purchase account
instead of assts account)

Commission Entered in to correct type but

wrong personal account (enter to Bens instead of
Alec)

Compensating Identical errors done in debit side

of one transaction and in credit side of another
transaction where the effects cancelled out

Original entry Rules correctly followed but with

different values ( Rs. 4500 instead of Rs. 5400)

Trading, Profit and Loss

Account
Transactions

Journal

Ledger
Ledger
Ledger

Trial
Balance

Balance Sheet

Profit and Loss

Account

Trading
Account

Format
<Company
Name>
Trading and Profit and Loss Account for the Year Ended in
<Date>
<Currency
<Precision
>
>
Sales

XXXXX

Purchases

XX

Deduct

XX

Add

Less: Cost of goods

sold:
Opening Stock

XXXX
Less: Closing
Stock
Gross Profit

XX

XXX
XX

<Company
Name>
Trading and Profit and Loss Account for the Year Ended in
<Date>
<Currency
<Precision
>
>
XX

Gross Profit
Less: Expenses

XX

Other Incomes

XXX

XX

Net Profit
Adjustments

Accruals
Prepayments
Bad and Doubtful debts