Trading and Profit & Loss Account: gross and net profit
1 min read
Updated 29 Sep 2026
3 views
AI summary
How gross profit and net profit are worked out, step by step.
3 sections
Trading Account → Gross Profit
Sales (net of returns) 20,00,000
Less: Cost of goods sold
Opening stock 3,00,000
+ Purchases (net of returns) 14,00,000
+ Direct expenses (freight in, wages) 1,00,000
− Closing stock 4,00,000
(14,00,000)
Gross Profit 6,00,000 (30% GP margin)Profit & Loss Account → Net Profit
Gross Profit 6,00,000
+ Indirect incomes (interest, commission) 40,000
− Indirect expenses (rent, salary, electricity,
depreciation, interest, bad debts) (4,10,000)
Net Profit before tax 2,30,000
− Income tax (60,000)
Net Profit after tax 1,70,000Which expenses go where
| Trading (direct) | P&L (indirect) |
|---|---|
| Freight inward, carriage, factory wages, power in factory, customs duty on imports | Office rent, salaries, advertising, depreciation, bank charges, interest |
GST is not income or expense when you can claim ITC. It sits in the Balance Sheet as input credit or output liability.
PreviousWhy the Trial Balance matches but the Balance Sheet is still wrong Next in Financial Statements Manufacturing Account
Was this guide helpful?