Trading Account:
Learning Objectives:
Define and explain trading account.
What are the items of a trading account.
Prepare the format of trading account.
What are advantages of trading accounting?
Definition and Explanation:
A trading account is an account which contains, " in summarized form, all the transactions, occurring, throughout the trading period, in commodities in which he deals" and which gives the gross trading result. In short, trading account is the account which is prepared to determine the gross profit or the gross loss of a trader.
Items of Trading Account:
The following items usually appear in the debit and credit sides of the trading account.
Debit Side Items:
The value of opening stocks of goods (i.e., the stock of goods with which the business was started).
Net purchase made during the year (i.e., purchases less returns).
Direct expenses, if any.
Credit Side Items:
Total sales made during the period less the value of returns, i.e., net sales.
The value of closing stock of goods.
The difference between the two sides of the trading account represents either gross profit or gross loss. Thus if the credit side is heavier that would mean that the trader has earned gross profit i.e., the excess of selling price of the goods sold over their purchase price. If the debit side is heavier it would mean that the trader has suffered gross loss i.e., purchase price of goods exceeds the selling price.
The balance of trading account which represents either gross profit or gross loss is transferred to profit and loss account.
Read more at http://www.accounting4management.com/trading_account.htm#wzSUG5mxOTcCJdMJ.99
Learning Objectives:
Define and explain trading account.
What are the items of a trading account.
Prepare the format of trading account.
What are advantages of trading accounting?
Definition and Explanation:
A trading account is an account which contains, " in summarized form, all the transactions, occurring, throughout the trading period, in commodities in which he deals" and which gives the gross trading result. In short, trading account is the account which is prepared to determine the gross profit or the gross loss of a trader.
Items of Trading Account:
The following items usually appear in the debit and credit sides of the trading account.
Debit Side Items:
The value of opening stocks of goods (i.e., the stock of goods with which the business was started).
Net purchase made during the year (i.e., purchases less returns).
Direct expenses, if any.
Credit Side Items:
Total sales made during the period less the value of returns, i.e., net sales.
The value of closing stock of goods.
The difference between the two sides of the trading account represents either gross profit or gross loss. Thus if the credit side is heavier that would mean that the trader has earned gross profit i.e., the excess of selling price of the goods sold over their purchase price. If the debit side is heavier it would mean that the trader has suffered gross loss i.e., purchase price of goods exceeds the selling price.
The balance of trading account which represents either gross profit or gross loss is transferred to profit and loss account.
Read more at http://www.accounting4management.com/trading_account.htm#wzSUG5mxOTcCJdMJ.99
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