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:

1. Record all Revenues: Include all sources of income generated during the period.
2. Deduct Direct Expenses: Subtract the cost of goods sold (COGS) from total revenue to calculate gross profit.
3. List Operating Expenses: Include all expenses directly related to operating the business.
4. Consider Non-operating Items: Include any non-operating income or expenses.
5. 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:

1. January 1: Purchased goods worth ₦10,000.
2. January 5: Sold goods worth ₦15,000.
3. January 10: Purchased more goods worth ₦5,000.
4. 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