chapter 23 : trading account , profit and loss account

Question 1

state the purpose of preparing the trading account

think: what do you need to trade?

Answer 1

• it’s where inventories, sales, purchases and carriage inwards accounts are closed off to
• it’s also used to calculate gross profit from trading activities

Question 2

what is the purpose of preparing the profit and loos account?

Answer 2

• it’s where the trading account, income, and expense accounts are closed off to
• it’s also used to calculate net profit/loss of the business

Question 3

differentiate between gross profit and net profit/loss

Answer 3

gross profit is the difference between sale and cost of sales. it’s the profit from the trading activities of the business
net profit is gross income less expenses when the income exceeds the operating expenses of the business