P & L in the extended trail balance ?

JJY Registered Posts: 5 Regular contributor ⭐
quick question

how is the profit and loss worked out at the end of doing the extended TB ?

and whats the calculation for working out wether its a credit or debit in the profit or loss and the SFP ?



  • CeeJaySix
    CeeJaySix Registered Posts: 645
    The profit (or loss) is the balancing figure for the trial balance. To think it through logically, all of the nominal accounts included in both the the SoFP and P&L must be equal, debit side and credit side, otherwise the balance sheet wouldn't balance. You've already done all your adjustments, so simply total all the debits and all the credits, all the way down the two parts of the extended TB (P&L accounts and SoFP accounts). Whichever side has the lower total, enter the balancing figure on that side - if you've got all your figures right, you should be entering the same figure on opposite sides, one in the P&L columns and one in the SoFP columns.

    Again you think through logically whether it's a profit or a loss. We know expenses are debits and income are credits. So on the P&L columns, if credits are higher than debits, you have more coming in than going out; your balancing figure will go in the debit column to show a profit. The other side of this double entry is to credit the retained earnings (or P&L reserve, or whatever they're calling it) on the balance sheet. You can confirm this by thinking about capital/equity - this is (nearly) always a credit on the balance sheet, and your retained earnings form part of this.
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