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Trading Account

Trading Account is prepared to know the trading results or gross profit on trading of the business. Simply, it is to find out the gross profit from business due to buying and selling of goods or services during a particular period. In other words, Gross profit is the difference between the sales and the cost of goods sold.

In business, the expenditure and incomes are classified into Direct and Indirect. All the direct expenditure are debited into the debit side of the Trading Account and all the indirect incomes are credited into the credit side of the Trading Account. After transferring all the above details, we have to balance the Trading Account. If the balance is in the debit side it means the business is getting profit and named as Gross profit. Suppose the balance is in the credit side, it shows Loss and it is called Gross Loss. The Gross Profit or Gross Loss is transferred to the profit and Loss Account either on the Credit side or Debit side.