The main objective of any business enterprise is to make profit. One must be able to determine whether a business is making a profit or loss. There are two kinds of profit. The first kind of profit is the GROSS PROFIT. The gross profit is not the actual profit of a businessbecause the business must have incurredsome expenses in the course of running the business. The second kind of profit is the NET PROFIT. This is obtained by deducting all expenses from the gross profit.

                The final account refers to those account which show the owner of the business at the end of each accounting period how much he/she has gained or lost. The final account is divided into 3, namely;

  1. Trading Accent
  2. Profit and Loss Account
  3. Balance Sheet
  4. TRADING ACCOUNT: The purpose of trading account is to show the gross profit or loss of the business.
  5. PROFIT AND LOSS ACCOUNT: The purpose of the profit and loss account is to show the net profit or loss after all expenses have been considered. Overhead expenses like salaries, rates, rent, insurance etc.


  1. OPENING STOCK: This is the worth of goods at the beginning of a trading period
  2. CLOSING STOCK: This is the amount of goods a trader has at the end of the trading period
  3. PURCHASES: This is the total of all goods bought during  the trading period
  4. RETURN OUTWARD/PURCHASES RETURNS: This is the total of goods returned to suppliers during the trading period as a result of defect
  5. SALES: This is made up of all cash and credit goods sold during the trading period
  6. RETURN INWARDS/SALES RETURN: This is the total of goods returned by the customers for one reason or the other.
  7. CARRIAGE INWARDS: This is the cost of goods incurred from the transportation of goods.
  8. GOODS AVAILABLE FOR SALES: This is calculated by adding opening stock to the purchases made during the trading period
  9. COST OF GOODS SOLD: This is also called COST OF SALES. It is the total monetary value of goods that are sold. It is arrived at by deducting closing stock of goods from cost of goods available for sales.



                                                                                N                                                                                               N

Opening Stock                                                   XX                           Sales                                                      XXX

+ Purchases                                                        XX                           – Return Inwards                              XXX

+ Carriage Inwards                                          XX                           Net Sales                                             XXX


– Return Outwards                                          XXX

Cost of goods available for sale                  XXX

– Closing Stock                                                   XX

Cost of goods sold                                           XXX

Gross profit                                                        XXX

                                                                                XXX                                                                                        XXX


Prepare the trading account from the extract obtained from the trial balance of Ogunnaike & Co.


Stock as at 1st Jan                                                                                            6,550

Purchases                                                                                                           20,500

Sales                                                                                                                      30,000

Return inwards                                                                                                 1,000

Return Outwards                                                                                             500

Stock as at 31st Dec. 1999                                                                             3000


Ogunnaike & Co. Trading Account for the year ended 31st Dec. 1999

                                                                                    N                                                                                                             N

Opening Stock                                                   6,550                                                     Sales                                      30,000

+ Purchases                                                        20,500                                                   -Return Inwards                               1,000

                                                                                27,050                                                   Net Sales                             29,000

– Return Outwards                                          500

Cost of goods available for sale                  26,550

– Closing Stock                                                   3,000

Cost of goods sold                                           23,550

Gross profit                                                        5,450

29,000                                                                                                   29,000

NOTE: To get your gross profit, you deduct your cost of goods sold from the Net Sales i.e N29,000- N23,550 = N5,450


Prepare the trading account of Ayegbajeje for the year ended 31st Dec. 1997 from the details below:


Opening Stock                                   1900

Carriage Inwards                              100

Closing Stock                                      1400

Purchases                                           12,000

Sales                                                      19,000

Return Outwards                             250


Ayegbajeje Trading Account for the year ended 31st Dec. 1997

                                                                  N                                                                                                              N         

Opening Stock                                   1900                                                       Sales                                      19,000

+ Purchases                                        12,000                  


+ Carriage Inwards                          100


– Return Outwards                          250


– Closing Stock                                   1,400

Cost of goods sold                           12,350

Gross profit                                        6,650

                                                                19,000                                                                                                   19,000


This is an aspect of income statement used to determine the net profit or loss or the period. It is presented immediately after the trading account. The total running expenses is deducted from the gross profit to arrive at the net profit or loss or the year. If the gross profit is greater than the total expenses, it is called NET PROFIT but if the total expenses are greater than the gross profit, it is called NET LOSS.

                The profit and loss account is prepared to determine the net profit or loss for the period, to determine the total expenses for the year, to determine the total income for the year.


Dr                                                           Profit and loss account for 31/12/1997                                                    Cr

                                                                N                                                                                                                             N

Discount Allowed                             XX                                           Gross profit b/d                                                                XXX

Rent and Rates                                 XX                                           Discount Received                                           XX

Wages and Salaries                         XX                                           Decrease in provision for bad debt          XX

Insurance                                            XX                                           Commission Received                                    XX

Electricity Bill                                      XX                                                                                                                           XXX

Carriage Outward                            XX

Bank Charges                                     XX

Motor Van Expenses                      XX

Petrol                                                    XX


Net Profit                                            XXX

                                                                XXX                                                                                                                        XXX


From example 1, using Ogunnaike trading account, the following expenses were further incurred from running the business.


Electricity                                             500

Rent                                                      750

Discount Received                           150

Discount Allowed                             100

Petrol                                                    100

Prepare: Ogunnaike profit and loss account


Dr.                          Ogunnaike Profit & loss account for the year ended 31st Dec. 1999                           Cr.

                                                  N                                                                                                                                              N

Electricity                                                             500                                        Gross profit b/d                                                5,450

Rent                                                                      750                                         Discount Received                           150

Discount Allowed                                             100                                         Total Income                                      5,600

Petrol                                                                    100        

Total Expenses                                                  1450

Net Profit                                                            4,150

                                                                                5,600                                                                                                     5,600

NOTE: The gross profit b/d is from the trading account. The net profit is arrived at by deducting the total expenses from the total income i.e N5,600-N1,450 =N4,150

Below is the format that combines the trading, profit and loss account together:

Dr.                          Olowookere Trading, Profit and Loss Account for the year ended 31st Dec. 2014                          Cr

                                                                                N                                                                                                               N

Opening Stock                                                   XX                                           Sales                                                      XXX

+ Purchases                                                        XX                                           – Return Inwards                              XX

+ Carriage Inwards                                          XX                                                                                                           XXX


– Return Outwards                                          XX

Cost of goods available for sale                  XXX

– Closing Stock                                                   XX

Cost of goods sold                                           XXX

Gross Profit                                                        XXX

XXX                                                                                                        XXX

EXPENSES                                                                                                            Gross profit b/d                                XXX

Cleaning of premises                                      XX                                           +Discount Received                        XX

Rent                                                                      XX                                           +Commission Received                 XX

Petrol                                                                    XX                                                                                                           XXX

Commission Allowed                                      XX

Discount Allowed                                             XX

Motor Van                                                          XX


Net Profit                                                            XXX

XXX                                                                                                        XXX

See: Basic Concepts for Business Studies for Upper levels 7-9 (JSS 1-3) by Adekunle K.O for more insight.


Prepare a trading, profit and loss account for Ajanlekoko Nig. Ltd. Using the details below:


Stock as at 1st Jan. 2002                                                                                18,000

Purchases                                                                                                           81,000

Return Inwards                                                                                                 450

Commission Received                                                                                    240

Commission Allowed                                                                                      300

Rent                                                                                                                      720

Return Outwards                                                                                             3,000

Sales                                                                                                                      123,000

Petrol                                                                                                                    900

Electricity bills                                                                                                    450

Discount Allowed                                                                                             1,200

Discount Received                                                                                           2,250

Closing Stock as at 31/12/2002                                                                    7,500

Prepared by: Adeniji G.O (Miss)