TRADING ACCOUNT

This is first financial statement prepared by the owner of the enterprise to determine the
gross profit during the year through the matching concept of accounting. The gross profit of the enterprise is calculated through the comparison of purchase expenses,
manufacturing expenses, and other direct expenses with the sales. It is prepared normally for one year in accordance with accounting period concept i.e.,
operating cycle of the enterprise which should not exceed 15 months with reference to the Companies Act 1956.
Balancing Process:
Gross profit is the resultant of an excess of the credit side total over the total of debit
side. It means that the gross profit is the excess of incomes in the credit side over the
expenses in the debit side.
     Gross Profit = [INCOMES (CREDIT) EXPENSES(DEBIT)
Gross Loss is the outcome of an excess of the debit side total over the total of credit
side. It means that the gross loss is the excess of expenses in the debit side over the
incomes in the credit side.
     Gross Loss = [EXPENSES (DEBIT)> INCOMES(CREDIT)
The purpose of crediting the closing stock in the trading account is to find out the materials
or goods consumed for trading purposes. In order to find out the total amount of goods or
materials consumed during a year, three different components to be separately considered.
Opening Stock
Purchases and
Closing Stock
Opening Stock: It is a stock of goods or raw materials available at the opening of the
accounting period, which is nothing but a closing stock of the yester accounting period
utilized for trading during the current year.
Purchases: Purchase of goods or raw materials is either for resale or manufacturing.
Closing Stock: It is a stock nothing but an outcome of lesser volume of sales than the
aggregate of opening stock and purchases
Material consumed could be calculated

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