Net Profit on trial balance

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hiya Everyone

Good luck all those who have only just started intermediate like me!

I was wandering if anyone could tell me where net profit for year end would go in a trial balance? does it show as a debit or a credit value and why?

thanks a lot

Nat

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    The profit goes in the trial balance twice

    Dr P&L
    Cr BS

    As far as the P&L side goes - you have sales which are credits and purchases which are debits -

    Turning everything backwards - profit + expenses = sales.

    Does that make sense :? Hope I have explained it OK!

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Net profit doesn't appear in the TB. The TB is all transactions that have happened throughout the year for that particular business, shown as either a Debit or a Credit.

    These balances are then extracted to produce the accounts in a 'proper' format. Doing this will then generate the "Net Profit".

    So the Net profit is a result of the TB transactions.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Hello

    Im sorry im really confused! I've just got a list of different accounts(wages, sales, stock, etc) and one for net profit and the question is to put them all into the trial balance? :(
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Anything that the company has paid for (ie any purchases, be it for stock, wages, paperclips etc) these are all debits.

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    do you think that would make the net profit a credit then!?!?!?!?!?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    No a profit would be a debit and a loss would be a debit.

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Net profit can appear in the trial balance with closing stock appearing on the debit side of the trial balance.

    As a result there would be no revenue and expenditure items appearing in the trial balance.

    Only Assets, Capital and Liabilities items would appear in the trial balance in order to prepare the Balance-sheet. As the netprofit as already taken care off. Unless there are adjustments to the profit & Loss Account, than the net profit balance will be adjusted accordingly.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance
    roy ramphul wrote:
    Net profit can appear in the trial balance with closing stock appearing on the debit side of the trial balance.

    As a result there would be no revenue and expenditure items appearing in the trial balance.

    Only Assets, Capital and Liabilities items would appear in the trial balance in order to prepare the Balance-sheet. As the netprofit as already taken care off. Unless there are adjustments to the profit & Loss Account, than the net profit balance will be adjusted accordingly.

    eh? :shock:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    In reply to Dean's question I remember doing a GCSE Question where I was given a trial balance for a Ltd Company where the net profit appeared on the Credit Side of the Trial Balance and the Closing Stock appeared on the Debit Side Of the Trial Balance.

    I was asked to prepare the balance sheet.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    While Profit/(loss) doesn't appear on the initial trial balance, it certainly appears on the extended trial balance as it's the balancing figure once all the others have been added up.

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    So the part of the TB you are referring to is the balance sheet part then!

    Limited companies also have 'retained profits' on the balance sheet not 'net profits'.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    I think Roy is getting confused with the "Profit and Loss Account" also known as the Reserves or Retained Earnings.

    This is the accumulated profit since the business commenced, not the actual profit for the year.

    Dean is correct in that the Trial balance is a list of balances in the nominal ledger which makes up the profit and loss and balance sheet. The resulting profit is contained within the profit and loss items within the trial balance i.e. sales less expenses.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance
    blobbyh wrote:
    While Profit/(loss) doesn't appear on the initial trial balance, it certainly appears on the extended trial balance as it's the balancing figure once all the others have been added up.

    Robert

    No mention of ETB though was there :)

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    This is what I mean I am sorry for any confusion caused?


    Fixed Asset at net book value Dr 985
    Expenses Accrued Cr 7
    Expenses Prepaid Dr 5
    8% Debentures Cr 80
    Proposed dividend Cr 60
    Stock in trade Dr 4
    Trade Creditors cr 21
    Rent Receivable in arrears Dr 1
    Share Premium Cr 120
    Trade Debtors Dr 16
    General Reserve Cr 77
    Cash in hand and at bank Dr 11
    Profit & Loss account balance Cr 95
    Provision for bad debts Cr 2
    Issued Capital 60000
    ordinary shares fully paid Cr 600


    Prepare the balancesheet showing
    the shareholders funds.

    As you can see that there are no expenses and revenue items in the trial balance.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    No need for sarcasm Dean, the ITB and ETB are still both trial balances. Additonally, Intermediate only covers sole traders and partnerships, not limited companies, so the IAS rules don't yet apply. The terms "Net profits", "Sales" and others do still appear on the accounts at this level...

    Since this is the intermediate forum not technician, don't confuse the students at this early stage...

    Just my opinion...

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Robert there was NO sarcasm. Did I not give the exact answer in my original post!

    Fact is that students have knowledge regardless of studies and getting confused, as Roy did.

    Do not imply or think that I am underminding any student! I gave the answer in the same context that the original question was asked in.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Well, I think maybe you gave half the answer by explaining the ITB. However, Claudialowe explained the appearance of "Net profit" in a trial balance by it's showing in the ETB, she just didn't mention that it was the extended format she was referring to. I believe, this - the ETB - was also probably what the original poster was asking about.

    Sorry, I'm just having a bad day in a week of bad days, that's all... :twisted:

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Referring back to Roy's reply.

    It is, as I thought, the profit and loss account in the balance sheet i.e. accumulated profits from prior years. This is also referred to as the profit and loss account and is always on the credit side if the company has always made a profit or has made profits in prior year's in excess of any losses incurred in other year's.

    Another way of looking at it is that the total of the credits less the total of the debits in the actual profit and loss account (i.e. the resulting profit or loss) goes to the "global" profit and loss account in the balance sheet.

    This confused me when I was at intermediate level (many year's ago now!!)

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Deleted: there was four more posts since I started writing it!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Hi Lincs,

    Roy has referred to the "Profit and Loss Account" contained within the trial balance rather than the profit (or in this case lack of) in the list of balances overleaf.

    Kind regards
    Steve

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Well, what a brilliant load of tutors (not) we would all make :?

    Anyone that wasn't confused at the beginning of this post, sure as hell will be now!

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    I am ever so sorry for the confusion.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Not so sure about Claudia's comments - a bit harsh I think! Every post on this thread has (at the very least) tried to help and Roy should not apologise for his postings.

    Sometimes it can be quite difficult to explain certain, technical topics of accountancy in "laymans terms" without causing offence or being made to look patronising. Posters can also bring up other (valid) points which can sometimes throw the thread off on a tangent, therefore ending the thread on a different topic entirely.

    Indeed, I, too, contributed to this thread, albeit replying to Roy Rhampul's replies, which could have (unintentionally) added to the "confusion".

    Hopefully, the original question raised at the very start of this thread has been answered, but I think we should all realise that this is a forum for helping - not point scoring.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    Hi Steve

    Sorry I meant to be facetious not harsh -

    My point was that the thread had gone off at a real tangent (as they often do), but none of us seemed to have helped Nat!

    A big sorry if I have offended anyone - its not my way :oops:

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    hiya

    no offence to me. i think i might just understand it now!!!!!!!!!!!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    hiya thanks a lot for this reply. its helped a hell of a lot!!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    I understand Claudia's (tongue in cheek) comment. I mis-interpreted the meaning (serious sense of humour failure at the time on my part I think) so I send my apologies for thinking Claudia was serious.

    We would make fantastic tutors!! We could even confuse ourselves!! :lol:

    Best regards
    Steve

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Net Profit on trial balance

    I couldn't follow this thread, it made me feel sea-sick!

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