Meaning of Trading Account:- Trading account deals with the terms of trading. In which it considered Selling or purchasing of business. As it reflects the Expenses and Revenue of business. It is created to know the Gross profit and Gross loss of business.
This is a trading account format. Which account is prepared by Trading Concerns. In other words, which business deals with purchasing and selling finished goods, to know the gross profit or gross loss suffered by them. From buying and selling of goods during a particular period.
Gross profit or Gross sale is the difference between the Cost of Goods Sold and Total Sales. If Sales exceeds the Cost of Goods Sold, Then Gross Profit Will be occurred. Otherwise, Gross Loss is incurred.
Note:- It deals with the whole factory transaction rather than individual departments. So it gives Gross Profit and Gross Loss. trading account format
FORMAT OR SPECIMEN OF TRADING ACCOUNT
Dr. Trading Account Cr
|To Opening Stock||By Sales Less Returns|
|To Purchases Less Return||By Closing Stock|
|To carriage/Freight/ Carriage inward/ Carriage on Purchase||By Gross Loss c/d to Profit and Loss Account|
|To wages/Direct wages/Factory wages/Salaries /Manufacturing wages|
|To Manufacturing Expenses|
|To Coal, Gas, Water|
|To Fuel and Power|
|To Import duty/Custom Duty/ dock due/Clearing Charges|
|To Factory Expenses|
|To Royalty on Production|
|To Excise Duty|
|To Consumable Stores|
|To Heating and Lighting|
|To Gross Profit c/d to Profit and Loss Account|
So, We have seen the debit side and understand that all Direct Expenses are included in the Factory Cost.
Thus, on the Debit Side we will understand all terms of events thoroughly. Let’s read..
- Opening Stock :- This is that stock which is left at the end of the period. And so it becomes opening stocks next year.
- Purchase:- Whatever purchased is incurred during the Period of year. All is debited in the trading account.
However, If we return any goods that will be deducted from the value of purchase.
- Carriage Freight:- This is a fare which is paid for transport to carry goods into business.
- Productive Wages:- These wages are paid to workers who are engaged in factory work.
- Manufacturing Expenses:- These are expenses incurred when raw material is converted into finished products or work-in-progress.
- Coal, Gas, Water:- Expenses paid for Coal, Gas and Water which is used into industry.
- Fuel and Power:- Fuel and Electricity is used for Manufacturing or production for which paid charges are treated as expenses.
- Octroi:- This is an expense paid to the municipal corporation as local authority charges at the time of entering goods into a particular locality of the biggest city.
- Import Duty:- This is a duty charge that is paid for import goods or stock from other countries into the home country.
- Factory Expense :- This is a factory expense Which is incurred for a factory whose benefit is derived by all departments.
- Royalty on Production:- When any one parent company gives the right to produce the same products as the parent company to a subsidiary company. Then the subsidiary company has to pay Royalty on production.trading account format
- Excise Duty:- This is a tax which is charged on manufacturing goods. Thus the burden of such tax falls on the customers while they purchase what they have to pay. trading account format
- Consumable Stores:- Consumable stores include all stock which is used to help in the manufacturing process. As cotton, Rough cloth, and oil. Which have some expenses.
- Heating and Lighting:- During the manufacturing some heating and Lighting is used. For which some expenses are paid. As lights of the factory. trading account format
- Belting:- This is a leather belt which is used as a machine for moving on. When these have been depreciated so need arise to Change them for proper running machines.
Gross Profit balance is derived on the debit side. Which is Carried down to Profit and Loss Account. trading account format
But some items are on the credit side which also needs to be understood.
- Sales:- When goods are sold to customers or businessmen then revenue is Generated in the business. Which is known as sales values. However, If any Sale Return is incurred then it will be less from the sale revenue.
- Closing Stock:- This is a part of stock which is left within the business after selling at the end of the accounting period.
Gross loss is considered on the credit side. If expenses value are more than sales revenue is treated as Gross Loss.
Thus, Format or Specimen of Trading account can be understood from the above format. And all individual terms can be understood by reading above. trading account format
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You Must Read and Understand the following format or specimen of Accounting.