Types of Profit

1. Gross profit: Gross profit is the differences between the total sales for goods and cost of goods sold.
2. Net profit: It is the excess of gross profit over the selling, distribution and administration expenses.

Items Found in Trading Profit and Loss Account

1. Purchase: This can be defined as the cost of the goods bought for resale, It Is The Total Of Cash And Credit Purchase It Does Not Include Fixed Asset And Most Be Debited In The Trading Account.
2. Sales: Is The Total Amount Of Cash And Credit Sales During The Trading Period, Sales Is Credited To The Trading Account And It Does Not Include Sales Of Fixed Asset.
3. Opening Stock: Is The Stock Of Goods Available For Sales At The Beginning Of The Trading Year Before Purchase Are Made.
4. Closing Stock :Is The Stock Of Goods Available At The End Of The Trading Year.
5. Return Outward: This Are Part Of The Goods Purchased That Are Return Back To The Suppliers ,It Is Deducted From The Purchased.
6. Return Inward: This Is Part Of The Goods Sold That Are Return Back By The Customer ,It Is Deducted From Total Sales To Arrived At The Net Sales.
7. Carriage Inward: Is The Cost Of Transporting Goods Purchase To The Point Of Sales, It Is Added To The Cost Of Purchase.
8. Cost Of Goods Available For Sales: Is The Total Value Of Goods To Be Sold After Adding Goods Purchase With The Opening Stock.
9. Cost Of Goods Sold: Is The Cost Of Goods Actual Sold ,Is Arrived By Deducting The Closing Stock From The Cost Of Goods Available For Sales.

Uses of Trading Profit and Loss Accounts

1. # Profit and loss account is the base of analyzing the performance of company.

2. # We can find net profit or net loss from profit and loss account. This will be useful for taking the decision of payment of dividend.

3. # Employees may demand reward on the basis good performance in profit and loss account.

4. # Bank can take decision for providing more loan to company, if bank sees good net profit in profit and loss account.

5. # Company can fix the accountability, if company suffers net loss in profit and loss account.

6. # Company can take the decision for increasing the prices of product if expenses are showing more what we are expecting in profit and loss account…

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SS2 Commerce Third Term: Profit