Question

Entry for transfer of Gross profit is :
Profit and Loss A/c Dr.
To Trading A/c

• A. True
• B. False

Answer 1

Answer: (B)

The given journal entry to transfer gross profit is wrong because the trading account which had to be debited is credited and profit & loss account which had to be credited is debited.

Debiting an item means reduction of amount and crediting means increase in amount.

Trading account is to be debited because gross profit when taken out from this account reduces the balance whereas profit & loss account is to be credited because gross profit is added to this account and hence will raise the balance

The correct journal entry would be:

Trading A/c Dr.

To profit and loss a/c.