The account which is organized to establish the gross revenue or gross loss of a business apprehension is called trading account. It is comparable to a conventional bank account, holding cash and securities, and is administered by an investment dealer. A Trading Account is generally overseen by an investment dealer, fund manager or personal trader.
Individuals and businesses can open trading accounts to accomplish trade transactions involving buying and selling financial instruments, such as stocks, options, merchandise, derivatives and futures.
The trading accounting has the following features:
- It is the primary step of final accounts of a trading apprehension.
- It is arranged on the final day of an accounting period.
- Only direct income and direct operating cost are measured in it.
- Direct operating cost is recorded on its debit side and direct income on its credit side.
- All items of direct operating costs and direct income regarding present year are taken into account but no item relating to past or next year is considered in it.
Following are the Major Advantages of Trading Account
- Trading account shows the connection between gross profit and sales that helps to measure effectiveness situation.
- It shows the ratios between costs of goods sold and gross profit.
- It gives the information about effectiveness of trading activities.
- It helps to evaluate between cost of goods sold and gross profit.
- It provides information concerning stock and cost of goods sold.