Trading, profit and loss account - JSS3 Business studies Past Questions and Answers - page 2
What is included in a Trading Account but not in a Profit and Loss Account?
Sales revenue
Cost of Goods Sold (COGS)
Operating expenses
Non-operating income
Which statement best describes the purpose of a Trading Account?
To determine net profit or loss
To calculate operating revenue
To record non-operating expenses
To analyze market trends
In a Profit and Loss Account, what represents the total revenue generated from primary business activities?
Gross Profit
Operating Revenue
Non-operating Income
Net Profit/Loss
What is the primary purpose of a Profit and Loss Account?
To summarize business revenues and expenses
To calculate the total assets of a business
To determine the market value of goods
To manage employee salaries
Explain the purpose of a Trading, Profit, and Loss Account in the context of financial reporting for businesses. Provide examples of the types of transactions that would be recorded in each section of these accounts.
The purpose of a Trading, Profit, and Loss Account is to summarize the financial performance of a business over a specific period, typically a fiscal quarter or year. The Trading Account focuses on direct expenses and revenues related to core operations, such as sales, purchases, and cost of goods sold. The Profit and Loss Account summarizes all revenues and expenses, including operating and non-operating items, to calculate the net profit or loss. For example, sales revenue, opening and closing stock values, purchases, and other direct expenses would be recorded in the Trading Account, while operating expenses, non-operating income, and non-operating expenses would be included in the Profit and Loss Account.
Describe the key components of a Profit and Loss Account and explain how each component contributes to the determination of a business's net profit or loss. Illustrate your explanation with examples.
The key components of a Profit and Loss Account include operating revenue, cost of goods sold (COGS), gross profit, operating expenses, non-operating income, non-operating expenses, and net profit or loss. Operating revenue represents income generated from primary business activities, while COGS reflects the direct costs associated with producing goods or services. Gross profit is calculated by subtracting COGS from operating revenue. Operating expenses comprise costs incurred from running the business, while non-operating items are revenue or expenses not directly related to core operations. Net profit or loss is determined by deducting total expenses from gross profit. For example, operating revenue would include sales revenue, while operating expenses could consist of salaries, rent, and utilities.
Consider the sample transactions provided in the previous section. Construct a table to record these transactions in a simple format, and explain how each transaction would impact the Trading Account and Profit and Loss Account of a business.
- Sample Transactions Table:
|
Date |
Transaction Description |
Amount (₦) |
Impact on Trading Account |
Impact on Profit and Loss Account |
|
Jan 1 |
Purchased goods |
10,000 |
Increases Purchases |
No impact |
|
Jan 5 |
Sold goods |
15,000 |
Increases Sales |
No impact |
|
Jan 10 |
Purchased more goods |
5,000 |
Increases Purchases |
No impact |
|
Jan 31 |
Closing stock valued |
8,000 |
No impact |
Increases Closing Stock |
In this table, each transaction impacts the Trading Account by affecting purchases, sales, or closing stock values. However, none of these transactions directly impact the Profit and Loss Account, as they do not involve operating or non-operating expenses or revenue