Financial Accounting, SS 2, Week 2
Topic: Trading Profit and Loss Account
Content:
- Meaning of Trading Account
- Terminologies found in trading account
- Format of a trading Account
Trading Account
Trading account is one of the financial account prepared to show the gross profit for the period under review,since it contains the result of business over a period of time.
Trading account look at the difference between the sales and the cost of goods sold,it is a revelation account which follows the principle of double entry.
On the debit side of a trading account,stocks at the beginning of trading is added with goods purchased and less return outward and then deduct closing stock of goods,the cost of goods sold will be arrived at.i.e opening stock+purchases-return outward-closing stock=cost of goods sold.
On the credit side return inward is deducted from the total sales which is equal net sales.the different between the net sales and the cost of goods sold is the gross profit
Terminologies found in Trading Profit and Loss Account
- Purchase: This can be defined as the cost of the goods bought for resale, It Is The Total Of Cash And Credit Purchase It Does Not Include Fixed Asset And Most Be Debited In The Trading Account.
- Sales: Is The Total Amount Of Cash And Credit Sales During The Trading Period, Sales Is Credited To The Trading Account And It Does Not Include Sales Of Fixed Asset.
- Opening Stock: Is The Stock Of Goods Available For Sales At The Beginning Of The Trading Year Before Purchase Are Made.
- Closing Stock :Is The Stock Of Goods Available At The End Of The Trading Year.
- Return Outward: This Are Part Of The Goods Purchased That Are Return Back To The Suppliers ,It Is Deducted From The Purchased.
- Return Inward: This Is Part Of The Goods Sold That Are Return Back By The Customer ,It Is Deducted From Total Sales To Arrived At The Net Sales.
- Carriage Inward: Is The Cost Of Transporting Goods Purchase To The Point Of Sales, It Is Added To The Cost Of Purchase.
- Cost Of Goods Available For Sales: Is The Total Value Of Goods To Be Sold After Adding Goods Purchase With The Opening Stock.
- Cost Of Goods Sold: Is The Cost Of Goods Actual Sold ,Is Arrived By Deducting The Closing Stock From The Cost Of Goods Available For Sales.
Format of a Trading Account
