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Trading Account

Trading refers to the activity of purchase and sale of goods. Trading Account is prepared to ascertain the trading profitability of the business. Only direct expenses and direct incomes are shown in Trading Account. Direct expenses are those expenses which are directly connected to the production or purchase of goods.

Trading account is prepared to ascertain the gross profit or gross loss during the accounting period. Gross profit refers to excess of sale proceed over cost of goods sold/services rendered. While preparing trading account, the selling price of goods and services should be matched with the cost of goods sold and services rendered.

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