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This is the account constructed for the purpose of finding the gross profit or loss of a business at a particular period. It is prepared to conform to the rules of double-entry. The Trading Account is a revenue account and forms part of the double-entry system. The Trading account contains:

On the debit side

(i) Opening stock

(ii) Add Net Purchases (Purchases less return outwards)

(iii) Add carriage Inward

(iv) Less: Stock at close

(v) Equal to Cost of goods Sold

On the Credit side

(i) Sales

(ii) Less: return Inwards

(iii) Credit side less debit side

(iv) Equal to gross profit or gross loss

Note: The Excess of the credit side over the debit side is the gross profit. While the excess of the debit side over the credit is a gross loss. The balance is transfer to the profit and loss account (Income statement).

Period of Account: The Trading account shows the operation of the business over a period of time usually a year.

The heading should be Trading, Profit and Loss account for the year ended….


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