Rules for Constructing a Simple Profit and Loss Account - JSS3 Business studies Lesson Note
To construct a simple profit and loss account, follow these rules:
- Record all Revenues: Include all sources of income generated during the period.
- Deduct Direct Expenses: Subtract the cost of goods sold (COGS) from total revenue to calculate gross profit.
- List Operating Expenses: Include all expenses directly related to operating the business.
- Consider Non-operating Items: Include any non-operating income or expenses.
- Calculate Net Profit/Loss: Deduct total expenses (including non-operating items) from gross profit to determine the net profit or loss.
Example of a Simple Profit and Loss Account:
|
Particulars |
Amount (₦)
Sales Revenue
XXXX
Cost of Goods Sold
(XXXX)
Gross Profit
XXXX
Operating Expenses
(XXXX)
Net Operating Profit
XXXX
Non-operating Income
XXXX
Non-operating Expenses
(XXXX)
Net Profit/Loss
XXXX
Sample Transactions:
Let's consider sample transactions for a hypothetical business:
- January 1: Purchased goods worth ₦10,000.
- January 5: Sold goods worth ₦15,000.
- January 10: Purchased more goods worth ₦5,000.
- January 31: Closing stock valued at ₦8,000.
Using these transactions, we can construct the Trading Account:
|
Particulars |
Amount (₦)
Sales
15,000
Opening Stock
0
Purchases
15,000
Less: Closing Stock
(8,000)
Total Cost of Goods Sold
7,000
Gross Profit
8,000
And the Profit and Loss Account:
|
Particulars |
Amount (₦)
Sales Revenue
15,000
Cost of Goods Sold
(7,000)
Gross Profit
8,000
Operating Expenses
0
Net Operating Profit
8,000
Non-operating Income
0
Non-operating Expenses
0
Net Profit/Loss
8,000