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Financial Statements are prepared : To know the profitability of the business and To know the financial position of the business

 The Trading Account shows the results of buying and selling of goods, in preparing this account, the general establishment charges are ignored and only the transactions in goods are included. ----- Jamshed R. Batliboi

Tips and Tricks for the Students

Instead of learning and remembering the items of Trading account, Keep the following points in mind while preparing the Trading Account. Only following expenses are included in Trading Account : Expenses Related to Purchases Expenses Related to Manufacturing Expenses Related to Factory

Tips and Tricks

1. Wages and Salaries is Direct Expense but Salaries and Wages is Indirect Expense. 2. Closing Stock is valued at Market Price or Cost Price whichever is less. 3. Sales Tax should be Deducted from the Sale while preparing Trading A/c 4. Income Tax is treated as Drawing and will deducted from Capital in B/S.

5. All Inward expenses are Direct and All Outward expenses are Indirect expenses for example Carriage inward is direct expense but Carriage outward is Indirect expense.
6. Date Column is not prepared while preparing final accounts

7. Ledger folio column is not prepared because final accounts are not prepared from ledgers , Final accounts are prepared from the Trial Balance.

Particulars To Opening Stock To Purchases xxxx Less : Return xxxx To Wages To Manufacturing Exp. To Freight inward To Carriage inward To Factory Exp. To Gross Profit (Bal.Figure)

Amount xxxx

Particulars By Sales xxxx Less : Return xxxx

Amount xxxx

xxxx By Closing Stock xxxx xxxx xxxx xxxx xxxx xxxx By Gross Loss (Bal.figure) xxxx

All Factory Exp. Manufacturing & Production Expenses and expense on purchases should be debited

Particulars To Gross Loss b/d To Salaries To office Exp. To Administrative exp. To Carriage outward To Postage Exp. To Net Profit (Bal.Figure)

Amount xxxx xxxx xxxx xxxx xxxx Xxxx xxxx

Particulars By Gross Profit b/d By Rent Received By Interest Received By Commission Received By Net Loss (Bal. figure)

Amount xxxx xxxx xxxx xxxx xxxx

All Office Exp, Administrative Expenses and expense on Sales should be debited

Current liabilities Trade creditors Bill payable Outstanding expenses Unearned incomes Bank overdraft Short term loans Fixed liabilities Loans (long terms) Mortgages Capital (add) Net profit or (less) Net loss (less) Drawings Reserves

Current assets : Cash in hand Cash in bank Investments (short term) Bills receivable Sundry debtors Closing stock Raw material Work in progress Finished stock Prepaid expenses Accrued income FIXED ASSETS : Furniture and fittings Motor vehicles Plant and machinery Building Land Patents and trade marks Goodwill