Items included in the credit side of the trading account

Followings are the items which are included in the credit side of the trading account.

1.Sales
Both cash sales and credit sales are included in trading account.

2.Sales returns
Sales returns must be deducted from total sales and to be shown in the credit side of trading account. Sales returns are the sold goods which are returned from customers.

3.Closing stock
Closing stock means the value of goods which are remain unsold in a particular accounting period. Closing sock may be in the form of raw materials ,. work in progress or finished goods. Closing stock is valued at cost or market price.

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Items included in the debit side of the trading account

Followings are the items which are include in the debit side of the trading account

1. Opening Stock:

Opening stock consists of raw materials , work in progress and finished goods depending upon the nature of business. In merchandising business , the opening stock consists of finished goods. In manufacturing concern , opening stock consists of raw materials.

2. Purchase

Purchase includes both credit purchase and cash purchase. Purchase is available in trial balance.

3. Purchase Returns

Purchase returns is appear in the credit side of trial balance. Purchase returns may be shown by deduction from purchases.

4. Direct Expenses

Direct expenses means all the expenses which are directly attributable to the purchase of goods. These are the some examples of direct expenses.

a. Direct labour or direct wages.

b. Freight on purchase.

c. Carriage on purchase.

d. Fuel , power and lighting expenses.

e. Packing charges.

f. Manufacturing expenses.

g. Commission on purchase.

h. Royalty

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Advantages Of Trading Account

Here are the following advantages of trading account

1. Trading account shows the relationship between gross profit and sales that helps to measure profitability position.

2. Trading account shows the ratio between cost of good sold and gross profit.

3. Trading account gives the information about efficiency of trading activities.

4. Trading account helps to compare between cost of good sold and gross profit.

5. Trading account provides information regarding stock and cost of good sold.

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Importance Of Trading Account

It is very important to find out gross profit or loss for the business to know whether purchasing, manufacturing and sales are sufficient for earning or not.The main objectives or important of trading account are as follows.

1.Trading account helps to know gross profit or loss.

2.Trading account provides information about the direct expenses.

3.Trading account provides safety against possibilities of loss.

4.Trading account helps in comparison of closing stock with last year's stock

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Concept And Meaning Of Trading Account

The first step of final account is trading account.Trading account is nominal account which is prepared at the end of accounting year. Trading account helps to find out gross profit or gross loss during the accounting period. Trading account consists of two sides 'debit and credit' . All direct expenses are debited and direct incomes are credited in trading account.Trading account contains mainly purchase of goods , sale of goods and expenses relating to the daily operation of factory.

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Preparation of Final Account

Final account is the combination of income statement and balance sheet. The final account is prepared at the end of every year which may be a calendar year or other also.

Normally final account includes the following items.

1. Trading Account

2. Profit and loss Account

3. Profit and loss Appropriation Account

4. Balance Sheet

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Concept And Meaning Of Final Account

Final Account is the final process of accounting. Final account is prepared to show the final result of the company in a specific period. Final account is also known as financial statement.Profit and loss account and balance sheet are included in final account.Profit and loss account shows the profitability achieved during the accounting period and balance sheet reflects the composition of various assets, liabilities, and share holder's equity on the accounting period.

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Items Included In The Liabilities Side Of The Balance sheet

1. Fixed Liabilities

Those liabilities which are payable to the owners only on the liquidation of the company after making the payment of other outside liabilities are called fixed liabilities.

2.Current Liabilities
Current liabilities are those type of liabilities which are payable out of current assets within the next accounting period.Bills payable,short term bank overdraft are the examples of current liabilities.

3.Long term Liabilities
Long term liabilities are those liabilities which are not payable within the next accounting period but will be payable within next few years. Debentures are the example of long term liabilities.

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