N4 Introductory Financial Accounting | Student Book 9.2.1 Statement of Profit or Loss


A Statement of Profit or Loss is drawn up to calculate the net profit of a business over a financial period. This statement indicates the financial performance of the business. Financial performance is assessed by giving a summary of how the business incurs its income and expenses, as well as determining whether the business has made a profit or loss during the past financial year.


It is only the Nominal Accounts of the Trial Balance that are closed off to the Statement of Profit or Loss. The Statement of Profit or Loss is in fact a vertical (columnar) format of the final accounts of the business. The Statement of Profit or Loss does not replace the final accounts, it is additional.


Example – continued 4. Draw up the Statement of Profit or Loss for Smile Traders.


SOLUTION: Statement of Profit or Loss for the year of Smile Traders ended 31 May 20.2


Sales for the year Less: Cost of sales


Opening inventory (01/06/20.1) Plus: Purchases


Carriage on Purchases Custom Duty


Less: Closing inventory (31/05/20.2) GROSS PROFIT FOR THE YEAR PLUS: OTHER INCOME Rent Income


Commission Income


GROSS INCOME FOR THE YEAR LESS: OPERATING EXPENSES Telephone Stationery Wages


Water and electricity Insurance


NET PROFIT FOR THE YEAR 43 526


(23 623) 62 128 23 753 221 160


(62 639) 19 903 1 939 1 139 800


21 842 (5 753) 559 116 667


3 237 1 174


16 089


Notes: • There are NO debit and credit columns in the Statement of Profit or Loss. • An amount with brackets (R0.00) indicates subtraction. • If the operating expense is more than the gross income, then the business would make a net loss.


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