Final accounts represent both the financial position of a business also shows the profitability of the concern. The final Account is used by both the external and internal parties for various purposes. The Trading Account, Profit and Loss Account, and Balance Sheet all together are known as the final accounts.
The trading account is the first part of this final account, and this is used to determine the gross profit which is earned by the business. The profit and loss account is the second part of the final account that is used to determine the net profit of the business concern.
Trading and Profit and Loss Account
A trading account can be called an investment account which contains securities and cash. Generally, a trading account refers to a trader’s main account. The investors tend to buy and sell the assets frequently, thus their accounts are subject to special regulation for this. The assets which are held in a trading account are separated from others which may be part of a long-term buy and hold strategy.
The profit and loss abbreviated as the P&L statement is a financial statement that summarizes the revenues, the costs, and the expenses that are being incurred during a specified period, usually in a fiscal year. The P&L statement aligns with the income statement, which records information about a company's ability or its inability to generate profit by increasing the sales revenue, by reducing costs, or both. The P&L statement is also referred to as a statement of profit and loss, income statement, statement of operations, etc.
Format of Trading, Profit and Loss Account
Trading Account Format
Profit and Loss Account Format
Trading and Profit and Loss Account and Balance Sheet
A balance sheet is the last drawn financial statement which reports a company's assets, liabilities, and the shareholders' equity at a particular year in time, and provides a basis for computing the rates of return and evaluating the capital structure of the company. The financial statement provides a view of what a company owns and owes to its debtors, as well as the amount that is invested by the shareholders.
How to Calculate Gross Profit in Trading Account
In order to calculate the gross profit, it is necessary to know the cost of good which is sold and its sales figures.
Gross Profit = Sales – COGS (Sales + Closing Stock) – (Stock in the beginning + Purchases + Direct Expenses)
Items that are included on the debit side and on the credit, side give the resultant figure which is either gross profit or the gross loss.