Write about trading accounts on financial statements.

Question

Write about trading accounts on financial statements.

Finance ManagementAccountingAcademic Content

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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.

Debit		Credit
Particulars	Amount	Particulars	Amount
To opening stock	XXXX	By sales XXXX
To purchases XXXX		Less: return inwards (XXX)	XXXX
Less: Return outwards (XXX)	XXXX	By closing stock	XXXX
To wages	XXX	By Gross Loss	XXX
To Carriage inwards	XXX
To freight inwards/cartage	XXX
To Gross profit c/d	XXX
	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

Particulars	Debit	Credit
To opening stock a/c		XXXX
To purchases a/c		XXXX
To direct expenses a/c		XXXX
Trading account	XXXX
(Being opening stock, purchases and direct expenses are transferred to trading A/c

For transfer of net sales and closing stock to trading account

Particulars	Debit	Credit
Sales A/c	XXXX
Ending stock A/c	XXXX
To Trading A/c		XXXX
(Being sales, closing stock transferred to trading account )

When gross profit transfer to P&L A/c

Particular	Debit	Credit
Trading A/c	XXXX
To profit & Loss A/c		XXXX
(As gross profit transferred to profit & Loss A/c)

When gross loss transfers to profit and loss account

Particulars	Debit	Credit
Profit & Loss A/C	XXXX
To TRADING ACCOUNT		XXXX
(Being the gross loss transferred to profit & Loss A/c

Mandalika

Published on 14-Aug-2020 10:09:19

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