Final Account || Trading Account 

What is Final Account?
Final Account are the financial statements which are prepared to calculate the amount of profit earn or loss occurred during a particular time period and to give a picture of the financial position of business of that period. Those accounts and statements which are prepared at the end of a particular fiscal year with a view to determine profit and loss as well as the financial position of the organization.

Components of Final Accounts

The components of final accounts are:

1. Trading A/c,
2. Profit and Loss A/c and
3. Balance Sheet.

Objectives and Importance of final account:

• To ascertain the result of business operations in gross profit and gross loss, net profit and loss of the business during the year.
• To present the true financial position of the business on a particular date.
• To help in making different managerial decisions.

Trading Account

The trading account is the first step of final account prepared at the end of financial year to ascertain gross profit or gross loss.

Objectives of preparing Trading Account

• To know the gross profit and gross loss made by the business during the particular period.
• To provide information about opening and closing stock for making purchasing plans and policies.
• To provide information about the direct expenses and factory expenses to make comparison.

Importance of Trading Account:

1. It helps to provide information regarding closing stock, sales and cost of goods sold.
2. It shows the relationship between gross profit and sales which helps to measure profitability position of the business.
3. It helps to provide information to prepare future plans and policies.
4. It helps to determine the price of goods and services.

Preparation of Trading Account It is a nominal account having debit and credit side in which all the direct expenses and manufacturing expenses are shown in debit side and all direct incomes i.e. sales and closing stock are shown in credit side of the Trading account.
 

Items Recorded in Debit

Items Recorded in Credit Side

Opening Stock Purchase and Purchase Return Direct Expenses: Direct expenses refers to the expenses which are incurred from the stage of purchase till the stock of making goods in sale able condition. Eg: Freight inward, carriages on purchase, import duty, Octrai duty, Transportation cost, cleaning charge, wages, fuel and motive power expenses, primary packing expenses, factory expenses, consumable stock, royalty, commission on purchase, etc.

Sales and Sales Return Closing stock (Note if closing stock appears outside of the trial balance i.e. adjustment then it is recorded in credit side of Trading A/C as well as assets side of Balance Sheet.)

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Example1: From the following information prepare Trading Account for the year ending on 31st Chaitra 2069.

Particular	Amount	Particular	Amount
Opening Stock	75,000	Sales	6,30,000
Return outwards	5,000	Wages	2,000
Carriage inwards	1,000	Purchases	5,25,000
Return Inwards	10,000	Closing stock	42,000

Solution:

Trading Account of ABC Fo the year ending 31st Chaitra 2069 Dr. Cr.
Particular	Amount	Particular	Amount
To Opening Stock	75,000	By Sales ................. 6,30,000 Less: Return Inwards: 10,000	6,20,000
To Purchase ............ 5,25,000 Less: Return outwards: 5,000	5,20,000	By Closing stock	42,000
To wages	2,000
To Carriage inwards	1,000
To gross profit	64,000
	6,62,000		6,62,000

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