A trading profit and loss account is updated regularly and indicates the amount of profit or loss a business experiences. Trading account is the term used to refer to the top section, and profit and loss account is used to refer to the bottom section.
A trading profit and loss account is used to compare the expected from the obtained results. Two profit measures are used to achieve this: gross and net profit. Gross profit is calculated in the trading account section, and it is the amount of sales less the cost of goods sold in the period in question. Net profit is calculated in the profit and loss account, and it is what remains after deducting all the other costs in the period from the gross profit.
Other items of expenditure showing expenses connected with the purchase, manufacture or stages of goods are also documented in the trading account. Return outwards show goods returned to the supplier so they reduce the purchase costs. Return inwards are goods returned by consumers, reducing the sales costs. Carriage inwards is the cost of bringing the goods to the company and it is added to the purchase figure. Carriage outwards is the cost associated with transporting the goods out of the company to the consumers. It is entered in the profit and loss account as it is an expense. Depreciation is considered an expense to the business and is entered on the profit and loss account.