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The trading and profit and loss account is a horizontal format to demonstrate how the double entry system works． The statement of profit or loss is a vertical format for the trading and profit and loss account as you've seen in section 1.1.You now have all the information you need in order to prepare G． John's statement of profit or loss for the year ending 31 December 20×1.It is shown in Exhibit 1.6：
Exhibit 1.6
You can see that the figures used are exactly the same using either the horizontal or vertical format． The vertical format is more widely used today since it is intended to make accounts easier to read and shows a more modern method of presentation． We will use it in future in this book．
You should note that not all the items in the trial balance have been used in the statement of profit or loss． The remaining balances in Exhibit 1.7 are assets or liabilities or capital， they are not expenses or revenue． These will be used later when a statement of financial position is drawn up．
Exhibit 1.7
·One of the main uses of the trading and profit and loss account is to provide information on the profit／ losses made in the period and compare these figures with previous year's results．
·Calculate the cost of goods sold， gross profit and net profit．
·Close off the sales， purchases and relevant expense accounts at the end of a period and post the entries to the trading and profit and loss account．
·Transfer the net profit and drawings to the capital account at the end of a period．
·The double entries required in order to close off the relevant expense and revenue accounts at the end of a period and post the entries to the trading account and to the profit and loss account．
·Any balances still remaining in the books of account after preparation of the trading and profit and loss account represent assets， liabilities and capital． These balances are entered into the statement of financial position （ see Chapter 2） and then carried forward to the next accounting period．