What are Final Accounts?

Final Accounts consists of

  • Trading Account
  • Profit and Loss Account
  • Balance Sheet

Trading Account

It is a Nominal Account and is prepared for calculating the GROSS PROFIT or GROSS LOSS arising as a result of trading activities of a business.

According to J.R.Batliboi:-

‘The Trading Account shows the results of buying and selling of goods. In preparing, this account, the general establishment charges are ignored and only the transactions in goods are included’

Importance of Trading Account

Trading Account is prepared for the following reasons

  • To know the Gross Profit or Gross loss arising due to trading activities of the business.
  • To find out the direct expenses incurred by the business for the goods sold during the year.
  • Find out how much closing stock is left as compared to previous years and thus find out the performance of the business.
  • Gives the trader an idea of the increase/decrease in Gross Profit /Gross Loss and to assess the performance of the business and take corrective measures, if needed.

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