SS1 Second Term Financial Accounting Lesson Note – Trading Account Terminologies

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WEEK 4

TOPIC: TRADING ACCOUNT TERMINOLOGIES

CONTENTS: DEFINITION OF TERMS: TRADING ACCOUNT OPENING AND CLOSING STOCKS.

• Definition of terms: opening and closing stock
• Purchases, Cost of goods sold, Return Inwards and Return Outwards
• Carriage Inwards and Carriage Outwards
• Gross profit /loss

SUB: TOPIC 1:

Trading Account is an account prepared to disclose the Gross Profit or Gross Loss.  Gross profit is the profit realized from buying and selling of goods.  It is the excess of revenue /sales over cost of goods sold while gross loss is the excess of cost of sales over sales/revenue. The trading account contains:

On the debit side:

1. Opening stock
2. Add purchases
3. Add carriage Inwards
4. Less Return Outwards/Purchases Returns
5. Less stock at close

Equal to cost of Goods sold.

On the Credit Side

1. Sales
2. Less Return Inwards
3. From Credit side less Debit side.

Equal to Gross Profit OR

From Debit side Less Credit side.

Equal Gross Loss.

NOTE: The balance of the trading account is transferred to Profit and Loss account.  The objective of a trading account is to ascertain either the gross profit or loss resulting from business transactions. The Trading Account has both:

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