Trading And Profit & Loss Account

Trading Account shows the Gross Profit / Loss.
Profit & Loss Account shows the Net Profit / Loss over a specific period.
When combined together, Trading and Profit & Loss Account shows both Gross and Net Profit / Loss.


Gross Profit / Loss = Sales - Cost of Goods Sold

Cost of Goods Sold = Opening Stock + Purchases - Closing Stock

Net Profit / Loss = Gross Profit / Loss - Expenses (Salary, Petrol, Rental, ....)

Take note that you must prepare Trial Balance before preparing Trading and Profit and Loss account.