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Dear Tutor
Please could you possibly help me to solve how to adjust these heading under statement of Profit / Loss. Please ignore the values they are random but I just want to know how they are treated in the right way?Sales(Revenue) – 80000
Sales Return(Return Inward) – 5000
Opening Inventory – 40000
Purchases – 42000
Carriage Inward – 2000
Discount Received – 1000
Closing Inventory – 60000
Purchase Return – 2000
Carriage outward -1500
Discount allowed – 500
Increase in allowance for receivables- 4000
Depreciation – 2000
Irrecoverable Debts – 3500Many Thanks
I am sorry but I don’t know what you mean by ‘how to adjust these headings’.
Sorry sir for abit confused.
I mean to say ,how to prepare statement of profit and loss account using above accounts ?
ThanksRevenue is 80,000 – 5000 = 75,000
Cost of sales is 40,000 + 42000 + 2000 – 1000 – 60000 – 2000) = 21000
So gross profit is 75000 – 21000 = 54000
Expenses are:
Carriage outward 1500
Discount allowed 500
Depreciation 2000
Irrecoverable and doubtful debts 4000 + 3500 = 7500Net profit is 46500
Thanks John , Now I am more clear.. but there is little bit calculation mistake Net profit should be 42500 instead of 46500 .
Please I have one more question how Decrease in allowance treated in Statement of P/L? Is it the same way like increase in allowance ?
Thanks for your all help and support.Sorry – you are correct. It should be 42400.
A decrease in allowance reduces the total expense of irrecoverable and doubtful debts; an increase in the allowance increases the total expense of irrecoverable and doubtful debts.
Thanks John for your great solution …I am really thankful for your great support.
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