Write about trading accounts on financial statements.

Trading account is the account which maintains trading activities of the firm. The entries mainly include net sales, cost of goods sold. This tells whether final result is loss or profit.

Features of trading account are as follows −

• Preparation of accounting statements of trading activities.
• Records net sales and cost of goods sold.
• Balance these accounts to find whether it profit or loss.
• Transfer balance to profit and loss account.

Contents of a trading accounting are as follows −

• Opening stock − Means finished goods only. Amount is taken from trial balance.

• Purchases − It includes purchases amount and credit purchases during year.

• Direct expenses − Expense incurred from time of purchases to finished goods in suitable conditions.

• Gross profit − If credit side is greater than debit side.

Items in trading account are as follows −

• Sales revenue − Income comes from business activities.

• Closing stock − Finished goods only.

• Gross loss − If debit side is greater than credit side.

Journal entries

For transfer of net sales and closing stock to trading account

When gross profit transfer to P&L A/c

When gross loss transfers to profit and loss account