Chapter 1
Statements of Profit or Loss：Sole Traders

■ Learning Objectives

·Explain the purpose and structure of statement of profit or loss．

·Calculate cost of goods sold， gross profit， and net profit．

·Explain the relationship between the trading account and the profit and loss account．

·Explain how the trading account and the profit and loss account fit together to create the statement of profit or loss．

·Explain how to deal with closing inventory when preparing the trading account section of a statement of profit or loss．

·Close down the appropriate accounts and transfer the balances to the trading account．

·Close down the appropriate accounts and transfer the balances to the profit and loss account．

·Prepare a statement of profit or loss from information given in a trial balance．

·Make appropriate double entries to incorporate net profit and drawings in the capital account．