Trading and Profit and Loss Account

trading account

As already explained, the first part of trading and profit and loss account is called trading račun.Cilj of trading accounts to find out the gross gain or gross loss, while the other part is to find the net profit or net loss.

Creating an account enterprises

Trading account prepared mainly to know the profitability of goods purchased (or manufactured) sales biznismen.Razlika between selling prices and cost of goods sold is 5 obtaining a businessman. So to calculate the gross salary, you need to know:

(a) the cost of goods sold.

(b) sales.

may determine the total sales of the book sales. Cost of goods sold, however, is calculated. n order to calculate the cost of sales is necessary to know its meaning. 'prices of goods "includes the purchase price of the goods plus expenses related to the purchase of goods and brining the goods to the place of business. To calculate the price of goods" should be deducted from the total price of goods purchased prices of goods into the hands we can study this phenomenon using the following formula:.

Opening inventory + cost of purchases - closing stock = cost of sales

As already explained that the purpose of making a trading account to calculate the gross profit in the business. It can be described as an excess amount of 'selling' through 'Cost of sales'. This definition can be explained by the following equation:

Gross Profit = Sales-Cost of goods sold or (Sales + Closing Stock) - (Stock at beginning + + Purchase Direct Costs)

opening stock and purchases with the purchase and bringing costs (direct exp.) Demonstrate the debit side, while the sales and closing stocks recorded on credit side. If the credit Jeater from borrowing the difference is written on the debit side of the gross profits, which ultimately is recorded on the credit side of profit and loss account. When the debit side exceeds the credit side, the difference is the gross loss, which was recorded on the credit side and end shown on the debit side of profit and loss account.

The usual items in trading account :

) Debit Side

1 Opening Stock. This is a stock which remained unsold at the end of last year. It must be brought to book with the opening of registration, so it always appears in the trial balance. Generally, it is shown as the first item on the debit side of trading account. Of course, in the first year of operation will be the opening stock.

2 Of purchase. This is normally the second item on the debit side of trading account. 'Purchase' means the total purchase, plus cash or credit purchases. Any return to the van (purchases return) should be deducted from the purchase to determine the net purchase. Sometimes the goods received before the relevant invoice from the supplier. In this situation, the date of preparation of final accounts intake should be voted on debit purchases and credit the account vendor account with the cost of goods.

3 Buying costs. All costs relating to the purchase of goods are also charged in the trading account. It includes salaries, freight inwards duty, cleaning fees, and charges, levies, octroi and import duties, etc.

4 Production costs. Such costs are incurred for the production of business or the provision of goods in a favorable condition viz., Motive power, gas fuel, stores, fees, factory, foreman and supervisor salaries, etc.

Although production costs are strictly take into account the production because we are preparing only trading account, the cost of this type may be involved in the trading account.

(B) Credit Party

1 Sales. Sales means the total sales, or cash plus credit sales. If there are any sales returns and should be subtracted from sales. Thus, the net sales recorded in the trading account. If the assets of the company is sold, should not be included in the sale.

2 Closing Stock Exchange. This is the value of unsold inventory is in Godown or shop on the last day of the accounting period. Normally the day of closing stock is out of balance trial in this case is shown on the credit side of trading account. But if it is given within the trial balance, it is not to be shown on the credit side of trading account but appears only in the balance sheet as assets. Closing stock should be valued at cost or market price whichever is less.

Assessment of market close

to determine the value of closing stock is necessary to make a complete list or a list of all items in their own god, together with the quantities. Based on physical observations of stock lists were prepared and the total value of inventories is calculated based on unit values​​. Therefore, it is clear that the stock intake includes (i) inventory, (ii) price. Each item is the price at cost, unless the market price is lower. Price at cost of inventories is simple, if the cost remains fixed. However, prices will remain fluctuating,. So that stock valuation is done on the basis of one of the many methods of evaluation

is preparing trading account trade helps to know the relationship between costs incurred and income and the level of business efficiency with which provedena.Omjer gross profit from sales is very significant: it came from:

X 100 Gross profit / Sales

With the main reward ratio can determine how efficiently the job is running higher the ratio, the better will be performance.

Closing Applications relating to the trading account

to transfer a variety of bills relating to goods and buying costs after closing entries noted:

(i) To open the Stock Exchange: Debit trading account and credit stock account

(ii) to purchase:. Debit trading account and buy credit accounts, the amount of the et amount after the deduction of purchase return

(iii) to buy back:. Debit purchases return account and credit purchases account

(iv) to go back inside: Debit sales account and credit sales returns account

(V) for direct costs:. Debit trading account and credit the direct costs of individual accounts

(vi) For sale: Debit sales account and credit account company. We find that all the accounts as mentioned above will be closed with the exception of trading accounts

(vii) the closing share: Debit closing stock accounts and credit trading account After recording the entries above the trading account will be balanced and the difference of the two sides established. If the credit side is more the result of gross profit for which the records are.

(viii) The gross profit:. Debit trading account and credit the income statement if the result is a gross loss over the entrance to the opposite

Income Statement

profit and loss account was opened by the recording of gross profit (the credit side) or gross loss (debit side ).

to achieve a net profit of entrepreneurs has cause a lot more costs than direct costs. These costs are deducted from net income (or add to the gross loss), the resultant figure will be a net gain or net loss.

costs are recorded in profit and loss account are ailed "indirect costs". These are classified as follows:

Cost of sales and distribution of .

These consist of the following costs:

() Salesperson salaries and commissions

(b) Commission agents

(c) Freight and transportation for sale

(d) Sales Tax

(e) bad debts

(F) Advertising

(g) Packing Costs

(h) export duties

administrative costs .

These are:

(a) The salaries and wages

(b) To ensure that

(c) legal costs

(d) business expenses

(e) Rates and taxes

(f) audit fees

(g) provision

(h) Lease

(i) Printing and stationery

(j) Postal and telegraph

(k) Bank charges

Financial expenses

These include:

(a) Discount allowed to

(b) Interest on capital

(c) Interest on the loan

(d) Discount accusations discounted

maintenance, depreciation and provisions, etc. .

These include the following costs

(a) Fix

(b) Depreciation

(c) the provision or reserve for doubtful accounts

(d) Reserve for discount on debtors.

With the above indirect costs debit side of profit and loss account includes a variety of operating losses as well.

on the credit side of profit and loss items recorded are as follows:

(a) Discount given

(b) The Commission has received a

(c) Rent received

(d) Interest received

(e) Income from investments

(F) Gain on sale of assets

(g) Bad debts recovered

(h) cash receipts from dividends

(i) Apprenticeship premiums, etc.