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Difficulty: EasyProfit and Loss Account and Net Profit Determination

A sole trader earned a gross profit of N45,000\text{N}45,000 and received a discount of N2,000\text{N}2,000. If total operating expenses paid during the year consisted of rent of N8,000\text{N}8,000 and salaries of N12,000\text{N}12,000, what is the net profit?

Answer: 27000 / 27,000 / N27,000 / N27000 / ₦27,000 / ₦27000

Answer

The net profit is N27,000\text{N}27,000.
Net profit is calculated by adding all additional income items (Gross profit of N45,000\text{N}45,000 + Discount received of N2,000=N47,000\text{N}2,000 = \text{N}47,000) and subtracting all operating expenses (Rent of N8,000\text{N}8,000 + Salaries of N12,000=N20,000\text{N}12,000 = \text{N}20,000), resulting in N27,000\text{N}27,000.

Step-by-Step Solution

1
Calculate total income by adding discount received to gross profit.
Total Income = N45,000+N2,000=N47,000\text{N}45,000 + \text{N}2,000 = \text{N}47,000.
Discount received is a gains/income item credited to the Profit and Loss Account.
2
Calculate total operating expenses.
Total Expenses = N8,000+N12,000=N20,000\text{N}8,000 + \text{N}12,000 = \text{N}20,000.
Rent and salaries are operating expenses debited to the Profit and Loss Account.
3
Subtract total expenses from total income to arrive at net profit.
Net Profit = N47,000−N20,000=N27,000\text{N}47,000 - \text{N}20,000 = \text{N}27,000.
Net Profit = (Gross Profit + Other Income) - Total Expenses.

Key Concept

Determination of Net Profit in Profit and Loss Account
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Topics

Profit and Loss Account and Net Profit Determination

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