trading account.pptx
- 1. Institute of Agri Business Management , Bikaner Trading Account, Profit And Loss Account And Balance Sheet Submitted to: Submitted by: Dr. Satyveer Singh Meena Shahaniya.S.N. Assistant Professor Manu.P. MBA(ABM) Part-1
- 2. Trading Account • Trading account is used to determine the gross profit or gross loss of a business which results from trading activities. Trading activities are mostly related to the buying and selling activities involved in a business. Trading account is useful for businesses that are dealing in the trading business. This account helps them to easily determine the overall gross profit or gross loss of the business. The amount thus determined is an indicator of the efficiency of the business in buying and selling.
- 3. • The formula for calculating gross profit is as follows: • Gross profit = Direct Revenue – Direct Expenses
- 4. • The trading account considers only the direct expenses and direct revenues while calculating gross profit. This account is mainly prepared to understand the profit earned by the business on the purchase of goods. • Items that are seen in the debit side include purchases, opening stock and direct expenses while credit side includes closing stock and sales.
- 5. Profit and Loss Account • Profit and loss account shows the net profit and net loss of the business for the accounting period. This account is prepared in order to determine the net profit or net loss that occurs during an accounting period for a business concern. • Profit and loss account get initiated by entering the gross loss on the debit side or gross profit on the credit side. This value is obtained from the balance which is carried down from the Trading account.
- 6. The examples of expenses that can be included in a Profit and Loss Account are: 1. Sales Tax 2. Maintenance 3. Depreciation 4. Administrative Expense 5. Selling and Distribution Expense 6. Provisions 7. Freight and carriage on sales 8. Wages and Salaries
- 7. • These appear in the debit side of Profit and Loss Account while Commission received, Discount received, profit obtained on sale of assets appear on the credit side. • Net profit can be determined by deducting business expenses from the gross profit and adding other incomes obtained • Net profit = Gross profit – Expenses + Other income
- 8. Trading and Profit and Loss Account Format
- 10. BALANCE SHEET • The Balance Sheet is a statement that shows the financial position of the business. It records the assets and liabilities of the business at the end of the accounting period after the preparation of trading and profit and loss accounts.
- 11. Features of Balance Sheet: • The features of a balance sheet are as follows: • It is regarded as the last step in final accounts creation • It is a statement and not an account • It consists of transactions recorded under two sides namely, assets and liabilities. Assets are placed in the left hand side, while the liabilities are placed on the right hand side • The total of both side should always be equal • The balance sheet discloses financial position of the business • It is prepared after trading and profit and loss account is prepared.
- 12. Importance of Balance Sheet: • Balance sheet analysis can say many things about a company’s achievement. Few essential factors of the balance sheet are listed below: • Creditors, investors, and other stakeholders use this financial tool to know the financial status of a business. • It is used to analyse a company’s growth by comparing different years. • Company’s balance sheet analysis can detect business expansion and future expenses.
- 13. What is the purpose of balance sheet? • The main purpose of the balance sheet is to show a company’s financial status. This sheet shows a company’s assets and liabilities, along with the money invested in the business. This statement is required to analyze the financial status information for several consecutive periods.
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