As discussed above, the first section of the trading and earnings statement is a trading account. The purpose of trading a trading account is to gain a gross profit or a gross loss while the second part is defined as net gain or net loss.
Creating a Trading Account
Goods (or produced) sold by a businessman. The difference between the selling price and the price of the goods sold is the income of the businessman. Thus, to calculate the gross earnings, it is necessary to know:
(a) the cost of goods sold
The total sales can be determined from the sales register. However, the cost of the goods sold will be calculated. n it is necessary to interpret the cost of sales. The "cost of goods" includes the purchase price of goods and the costs of purchasing goods and embedding merchandise into the shop. In order to calculate the cost of the goods, "the price of the goods must be deducted from the total cost of the goods and the following formula can be studied:
Opening Shares + Purchasing Costs – Closing Shares = Sales Costs
As mentioned above, is based on the following equation:
Gross profit = Sales cost sold or sold (sale + closing stock) – (at the beginning of the inventory), the gross profit of the business is calculated as the "gross profit" + Purchases + Direct Expenditures)
(Direct Emission) Revenues are recorded on the debit side while the sales and closing stock are recorded on the credit side If the credit partner Jeater is on the debit side When the deposit page exceeds the lending side, the difference is the gross loss that is recorded on the credit side and finally shows on the debit side of the profit and loss account.
Traded Account Accounting Items :
A) Debit Side
1. Opening stock. This is the value that was sold at the end of last year. Books had to be imported by opening the entrance; so it always appears within the experiment balance. Usually, it appears on the debit side of the trading account as the first item. Of course there is no opening stock in the first year of the business
. Purchases. This is usually a second invoice on the debit side of the trading account. "Buying" means the total purchase, ie cash and credit purchases. Any refund (purchase return) must be deducted from the purchase to find out the net purchase. Sometimes you get the goods right before your account. In such a case, a receipt must be entered on the purchase account at the time of the final accounts and the supplier's invoice is to be credited with the cost of the goods
. Purchase costs. All costs related to the purchase of goods are also charged on the trading account. These include wages, importation of imports, customs duties, settlement fees, port charges, excise duty, octroi and import duties, etc.
4th Production costs. These costs are borne by the businessmen that the goods are sold, in motifs, in gas works, in warehouses, in royalties, in factory costs, in prefabrication and supervisory pay, etc. Produce or sell it.
Although manufacturing costs should be strictly taken into account in the manufacturing account as we only create a trading account, this type of expense is included in the trading account
(B) Credit page
Sales. Sales are all sales, for example. If there are sales revenue, they should be deducted from the sales. Thus net sales are credited to the trading account. If the assets of the company are sold, they should not be sold
. Closing kit. This is the value of the inventory that is sold or sold in the store on the last day of the settlement period. Normally, the closing file is outside the trial version, in this case you can see the credit side of the trading account. But if the test balance is inside, it will not appear on the credit side of the trading account, but will only appear as a tool on the balance sheet. The closing stock should be valued at cost or market price, whichever is the smaller.
Evaluation of closing stock
Determining the closing value is required to produce a complete inventory or list of all divine items in an amount. Based on physical observation, a stock list is made and the total stock value is calculated on the basis of unit value. Thus, it is obvious that inventory (i) inventory, (ii) pricing. The price of each item, unless the market price is lower. Pricing of cost calculation is simple if cost remains constant. But prices fluctuate; so inventory valuation is carried out on a number of valuation methods
Creating commercial invoices will help you to get acquainted with the relationship between costs incurred and income earned and the level of efficiency of your operations. The ratio of gross profit to sales is very significant: it came to the following:
Gross Profit X 100 / Sales
Closing entries for the trading account
Transferring various accounts related to the goods and purchase costs after the closing closing entries:
(i) Opening of the Stock Exchange: Deposit Trading Account and Loan Account
(ii) For Purchases: Debit Commercial Account and Loan Account Amount, Amount Amount After Purchase Price Amount. (iii) Return of Purchases: Deposit Purchase Returns and Loan Bonds
iv. For Revenue Revenue: Debit Sales Account and Credit Sales Redemption Account
(v) For Direct Expenditures: Depositing Trading Accounts and Borrowing Costs for Unique Accounts
(vi) Sales: Debit Sales Account and Credit Reporting Account. It will stipulate that all accounts in the abovementioned accounts must be closed with the exception of the trading account.
(vii) Closing the Stock: Deposit Closing Stock and Credit Account After recording the above records, the trading account is balanced and the difference is settled by two parties. If the lending side is greater than the result, the gross profit that will be paid after the entry
viii. In case of gross profit: Debit Trading Account and Loan Profit and Loss Account If the result is a gross loss, the above entry is reversed  Income Statement
The profit and loss account is opened by recording the gross profit (on the credit side) or the gross loss (debit side)
To reach net profit, a businessman has to pay more on direct costs. These costs are deducted from the profit (or added to the gross loss), the result is net profit or net loss.
Expenditures included in the profit and loss account are "indirect costs".
(c) Freight and Freight
(d) Sales Tax
(e) Incorrect (19659005) (19659005) These are the following costs: (19659005) (f) Advertising
(g) Packaging costs
(h) Export duty
(a) Office Payments and Wages
b) ) (19659005) (d) Commercial Expenses (19659005) (e)
(f) Auditing Fees
(h) Rental Fees
(19659005) (j) Postal and telegrams
(a) Authorized discount
(b) Interest invested in capital
(c) ) Discounted discounts  Maintenance, depreciation and provisions, etc. (19659005) (b) Depreciation of Assets
(c) Collateral or Reserve for doubtful debts
In addition to the above indirect costs, the carrying amount of the profit and loss account it also includes various business losses.
(b) Commission received
(c) Received rents
(d) Interest received
(e) Revenue from investments  (f) Profit from sale of assets
Recovery of recovered debts
(h) Dividends received
(i) Student training, etc.
Source by Anil Kumar Gupta