The principal value of these subdivisions of profit and loss lies in the fact that they reveal not only the amount but the sources of profits and losses, which is one of the important functions of accounting.
The profit and loss account of a professional or other non-trading concern need not be subdivided as explained for a trading concern. In a non-trading business, all accounts representing revenue receipts or revenue expenditures are transferred direct to profit and loss account.
80. Transfer of Gross Profit. The gross profit from trading is now transferred to the credit of profit and loss account, and this account is debited with the balances of all revenue expenditure accounts. Continuing the illustration from Article 78, we have:
81. Transfer of Net Profit. The net gain is transferred to the credit of proprietor's account in a single proprietorship.
MERCHANDISE INVENTORY ACCOUNT