Trading accounts and profit and loss accounts

At the end of every trading year a business prepares final accounts. These provide a financial summary of all their trading activity during the year.

The trading account shows the gross profit [Gross profit: The difference between sales revenue and the cost price of these sales. ] (or loss) that the company has made. Profit is the money made by the business and equals income minus expenses.

The profit and loss account shows the net profit [Net profit: Gross profit minus expenses (eg wages, rent, rates, advertising etc) leaves net profit. ] (or loss) made. The trading account and profit and loss account are often combined as one trading and profit and loss account so that both the gross and net profit can be displayed in the same set of accounts.