A trading profit and loss account is a report that shows how much money a business made and spent from selling goods over a specific time. It includes:

• Total money earned from sales.


• Costs of producing or buying the goods sold.


• Money left after subtracting Cost of Goods Sold (COGS) from sales.


• Other costs like salaries and rent.


• Final profit after subtracting operating expenses from gross profit.

1. It calculates if the business made a profit or a loss after all costs are deducted from income.


2. It helps to see how much money comes from core business activities, like sales.


3. It highlights where money is spent, helping to reduce unnecessary costs.


4. It allows observing the business’s performance over time, showing improvement or reduction.


5. It helps in setting budgets and planning for future investments.


6. It provides accurate records needed for tax purposes.

1. Start with the total money earned from sales.( Revenue (Income)).


2. Subtract the cost of making or buying the goods sold.(Cost of Goods Sold (COGS) ).


3. The money left after subtracting the cost of goods sold from the revenue.(Gross Profit ).


4. Subtract other business costs, like rent, wages, and utilities.(Operating Expenses ).


5. The profit after subtracting operating expenses from gross profit.(Operating Profit ).


6. Add any other income (e.g., interest) or subtract extra costs not related to the main business.(Other Income/Expenses ).


7. The profit before paying tax.(Net Profit Before Tax (NPBT) ).


8. Subtract the tax owed from the profit.(Tax )


9. The final profit after tax, showing how much the business has earned in total.(Net Profit).

Example 1:

Abiola Nigeria Plc – Profit and Loss Account

1. Revenue (Sales): ₦1,000,000


2. Cost of Goods Sold (COGS): ₦600,000


3. Gross Profit: ₦400,000 (Revenue - COGS)


4. Operating Expenses (Total): ₦250,000


• Includes rent, salaries, utilities, etc.


5. Operating Profit: ₦150,000 (Gross Profit - Operating Expenses)


6. Other Income: ₦10,000 (e.g., interest income)


7. Net Profit Before Tax: ₦160,000 (Operating Profit + Other Income)


8. Tax (5%): ₦8,000


9. Net Profit After Tax: ₦152,000 (Net Profit Before Tax - Tax)

Item	Amount (₦)
Revenue (Sales)	₦1,000,000
Cost of Goods Sold (COGS)	₦600,000
Gross Profit	₦400,000
Operating Expenses	₦250,000
Operating Profit	₦150,000
Other Income	₦10,000
Net Profit Before Tax	₦160,000
Tax (5%)	₦8,000
Net Profit After Tax	₦152,000

Showing workings :

• Gross Profit = Revenue - COGS
  
  ₦400,000 = ₦1,000,000 - ₦600,000


• Operating Profit = Gross Profit - Operating Expenses
  
  ₦150,000 = ₦400,000 - ₦250,000


• Net Profit Before Tax = Operating Profit + Other Income
  
  ₦160,000 = ₦150,000 + ₦10,000


• Net Profit After Tax = Net Profit Before Tax - Tax
  
  ₦152,000 = ₦160,000 - ₦8,000