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TRADING ACCOUNT

What Is Trading Account

Trading Account is prepared to calculate the Gross Profit of an entity for a particular time period. Time period may be 1 year, 3 months or 1 month.

 Trading Account shows following items:
  • Sales / Revenues
  • Sales Returns
  • Cost of Sales and 
  • Gross Profit
Cost of Sales = Opening Stock (Inventories) + Purchases - Closing Stock (Inventories)

Gross Profit = Sales - Cost of Sales



Example:

·        ABC Company has following details
·        Inventory at 1st September, 2017 = $100
·        Purchases of stock during the year = $300
·        Inventory at 31ST August, 2018 = $150
·        Sales for the year = $400

1)                 Calculate Cost of Sales and Gross Profit?
2)               Prepare Trading Account for the year 2018

Solution:

1)                 Cost of sales = $100 + $300 – $150
                        = $250

Gross profit = $400 - $250 = $150

2)                  
ABC Company
Trading Account for the year ended 21 August, 2018
                                                         $                 $
Revenue                                                          400  

Less: Cost of sales        
Inventories 1 September              100
Purchases                                       300
Inventories at 31 August 2018   (150)        250

Gross profit                                                      150

*Inventories are valued at lower of cost or net realizable value

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