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Zorluk: ZorPreparation of Trading and Profit & Loss Account for Manufacturing Entities

The following summary of financial information was extracted from the accounting records of Highgrade Manufacturing Company for the year ended 31st December 2025:

Financial ItemAmount (₦)
Sales Revenue520,000
Opening Stock of Finished Goods60,000
Cost of Finished Goods Produced310,000
Closing Stock of Finished Goods50,000
Carriage Outwards15,000
Administrative Expenses (including ₦5,000 prepaid)35,000
Selling Expenses (excluding ₦8,000 accrued)22,000

Based on the information above, complete the missing financial figures for the Trading and Profit & Loss Account.

Cevap:The Gross Profit reported in the Trading Account is ₦【200,000】, while the Net Profit reported in the Profit & Loss Account is ₦【125,000】.

Cevap

The Gross Profit is ₦200,000 and the Net Profit is ₦125,000.
To calculate the Gross Profit, opening stock of finished goods (₦60,000) is added to the cost of finished goods produced (₦310,000) minus closing stock of finished goods (₦50,000) to arrive at a Cost of Goods Sold of ₦320,000. Subtracting this from Sales Revenue (₦520,000) gives a Gross Profit of ₦200,000. For Net Profit, operating expenses are adjusted for prepayments and accruals: Administrative Expenses (₦35,000 - ₦5,000 = ₦30,000), Selling Expenses (₦22,000 + ₦8,000 = ₦30,000), and Carriage Outwards (₦15,000). Total operating expenses of ₦75,000 subtracted from ₦200,000 Gross Profit yields a Net Profit of ₦125,000.

Adım Adım Çözüm

1
Calculate Cost of Goods Sold (COGS)
COGS = ₦60,000 + ₦310,000 - ��50,000 = ₦320,000
Cost of goods sold in a manufacturing firm is calculated by adding the opening stock of finished goods to the cost of production (finished goods produced) and subtracting the closing stock of finished goods.
2
Calculate Gross Profit
Gross Profit = ₦520,000 - ₦320,000 = ₦200,000
Gross profit is determined by deducting the cost of goods sold from sales revenue.
3
Calculate Adjusted Total Operating Expenses
Carriage Outwards = ₦15,000; Adjusted Administrative Expenses = ₦35,000 - ₦5,000 = ₦30,000; Adjusted Selling Expenses = ₦22,000 + ₦8,000 = ₦30,000. Total Operating Expenses = ₦15,000 + ₦30,000 + ₦30,000 = ₦75,000
Prepaid expenses must be subtracted from paid administrative expenses, while accrued expenses must be added to selling expenses. Carriage outwards is a selling/distribution expense charged directly to the Profit and Loss Account.
4
Calculate Net Profit
Net Profit = ₦200,000 - ₦75,000 = ₦125,000
Net profit is calculated by deducting total operating expenses from gross profit.

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Preparation of Trading and Profit & Loss Account for Manufacturing Entities
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Preparation of Trading and Profit & Loss Account for Manufacturing Entities

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