Write about trading accounts on financial statements.

Finance ManagementAccountingAcademic Content

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.

DebitCredit
ParticularsAmountParticularsAmount
To opening stockXXXXBy sales XXXX
To purchases XXXX
Less: return inwards (XXX)XXXX
Less: Return outwards (XXX)XXXXBy closing stockXXXX
To wagesXXXBy Gross LossXXX
To Carriage inwardsXXX

To freight inwards/cartageXXX

To Gross profit c/dXXX


XXXX
XXXX

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

ParticularsDebitCredit
To opening stock a/c
XXXX
To purchases a/c
XXXX
To direct expenses a/c
XXXX
Trading accountXXXX
(Being opening stock, purchases and direct expenses are transferred to trading A/c

For transfer of net sales and closing stock to trading account

ParticularsDebitCredit
Sales A/cXXXX
Ending stock A/cXXXX
To Trading A/c
XXXX
(Being sales, closing stock transferred to trading account )

When gross profit transfer to P&L A/c

ParticularDebitCredit
Trading A/cXXXX
To profit & Loss A/c
XXXX
(As gross profit transferred to profit & Loss A/c)

When gross loss transfers to profit and loss account

ParticularsDebitCredit
Profit & Loss A/CXXXX
To TRADING ACCOUNT
XXXX
(Being the gross loss transferred to profit & Loss A/c
raja
Published on 14-Aug-2020 06:39:19
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