Solution 6.3

Solution 6.3

Difference between the Trading account and the Profit & Loss account

The trading account is prepared when a business deals in products. It shows the profit or loss made on trading in ‘products’ i.e. sales less the cost of those sales. The term gross profit (or loss) is used in the trading account. A profit and Loss account calculates the net profit or loss of a business. The net profit is revenue less all expenses.

Trading for period ended 31 December 2004

	€	€	€
Sales		500,000
Returns inwards		(30,000)	470,000
Less cost of Goods sold
Opening stock		42,000
Purchases	300,000
Returns out	(50,000)
Carriage inwards	20,000	270,000
Closing stock		(36,000)	(276,000)
Gross Profit			194,000