How do you do trading and profit and loss account together?

Trading Account

• Purpose: Calculates Gross Profit or Loss.
• Format:

Debit (Dr) Credit (Cr) Opening Stock Sales Purchases Closing Stock Direct Expenses (e.g. wages, carriage inwards)    

• Gross Profit = Sales + Closing Stock – (Opening Stock + Purchases + Direct Expenses)
  → Transferred to P&L account.

🔹 2. Profit and Loss Account

• Purpose: Calculates Net Profit or Loss.
• Starts with: Gross Profit (from Trading Account)

Debit (Dr) – Indirect Expenses Credit (Cr) – Indirect Incomes Salaries, Rent, Depreciation Commission Received, Interest Office Expenses, Selling Expenses    

• Net Profit = Gross Profit + Other Incomes – Indirect Expenses
  → Transferred to Capital in Balance Sheet. 

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