The Trading Account
A Trading Account is a financial statement that forms part of the final accounts of a business. It is prepared to determine the gross profit or gross loss of a company during an accounting period.
The profit and loss account
A financial statement showing a company's revenues, expenses, and profits over a specific period.
Profit and loss appropriation account
A Profit and Loss Appropriation Account is an extension of the Profit and Loss Account that shows how a company or partnership allocates its net profit at the end of an accounting period. It is mainly used by partnership firms and companies to distribute profits among partners, shareholders, or reserves.
The term "Profit and Loss Account" is used in your IB exams, but in IFRS terminology, it is commonly known as the Statement of Profit or Loss or Income Statement.
Statement of Profit or Loss for Company X for the year ended 31st December2024:
| $ | |
|---|---|
| Sales revenue | 750,000 |
| Cost of sales | (240,000) |
| Gross profit | 510,000 |
| Expenses | (300,000) |
| Profit before interest and tax | 210,000 |
| Interest (financing costs) | (20,000) |
| Profit before tax | 190,000 |
| Tax on profits | (47,000) |
| Profit for period | 143,000 |
| Dividends | (43,000) |
| Retained profit | 100,000 |
Cost of Sales / Cost of Goods Sold
The direct costs associated with producing or purchasing goods that a company sells during a period, including raw materials and labour.
Gross profit only considers direct costs, whereas net profit includes all expenses, giving a full picture of profitability.
| $ | |
|---|---|
| Sales revenue | 750,000 |
| Cost of sales | (240,000) |
| Gross Surplus | 510,000 |
| Expenses | (300,000) |
| Surplus before interest and tax | 210,000 |
| Interest (financing costs) | (20,000) |
| Surplus before tax | 190,000 |
| Tax on surplus | (47,000) |
| Surplus for period | 143,000 |
| Retained Surplus | 143,000 |
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