TRADING ACCOUNT

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 WHAT IS TRADING ACCOUNT

• Preparation of Trading Account is the first stage of

preparing financial accounts. It is the financial
statement which shows result of buying and selling of
goods and services during an accounting period.
 FEATURES OF TRADING ACCOUNT
• It is the first stage in the preparation of final accounts of a trading entity.
• It records only net sales and direct cost of goods sold.
• The balance of this account shows Gross Profit or Gross Loss.
• Gross Profit or Gross Loss is transferred to Profit and Loss Account.
 PURPOSE OF TRADING ACCOUNT
• Trading Account is prepared to determine the gross profit earned or gross
loss incurred in the accounting period.
• It is based on Matching Principle. Hence, revenue from sale of goods and
services are matched with the cost of goods sold and services rendered.
CONTENTS OF TRADING ACCOUNT
• It is credited with sales, services rendered and closing stock.
• It is debited with net purchase, opening stock and other direct expense.
• The difference between the two sides is either gross profit or gross loss.