 Trading account is a book of account prepared by a business to determine gross profit or loss. It shows the result of business operation over a period of time, Hence, the heading reads’’ Trading account for the year ended 31 st December, 20xx.

 PURCHASES: This refers to goods bought either on credit or with cash for resale. This does not include purchases of fixed assets.  SALES: Totality of goods sold, either on credit or with cash during the trading period. Sales in this context exclude sale of fixed assets.

 OPENING STOCK: The value of goods available for sale at the beginning of the trading period.  CLOSING STOCK : The value of unsold goods at the end of the trading period.  RETURNS OUTWARDS: These refer to the value of goods returned to the suppliers.It is usually deducted from purchases.  RETURNS INWARDS:Cost of goods returned by the customers.

 CARRIAGE INWARDS: Cost of conveying goods purchased to the company. It a part of the purchases figure.  COST OF GOODS AVAILABLE FOR SALE: It is the summation of opening stock and net purchases.  COST OF GOODS SOLD: It is the difference between cost of goods available for sale and closing stocks.  STOCK DRAWING: Otherwise called goods withdrawn for own use. It is usually deducted from purchases to get net purchases.

Opening stock x Sales x Purchases xLess Returns inwards x Add: Carriage inwards xNet sales x xx Less: Return outwards x Stock drawings x x Add Net purchases xx

Cost of Goods Available for Sale xxx Less Closing stock x Cost of Goods sold xx Gross Profit x xx

 Prepare trading account of OBJ from the following balances for the year 31 st December  Opening stock 5,000  Purchases10,000  Sales 40,000  Returns outwards 3,000

 Returns inwards 4,000  Carriage inwards2,000  Stock drawings 1,500  Closing stock 5,500

Opening stock 5,000Sales 40,000 Purchases 10,000Less Returns inwards 4,000 Add: Carriage inwards 4,000Net sales 36,000 14,000 Less: Return outwards 3,000 Stock drawings 1,500 4,500 Add Net purchases 9,500 Cost of Goods Available for Sale 14,500 Less Closing stock 5,500 Cost of Goods sold 9,000 Gross Profit 27,000 36,000

 Prepare trading account of OBJ from the following balances for the year 31 st December  Opening stock 10,000  Purchases20,000  Sales 70,000  Returns outwards 4,000

 Returns inwards 6,000  Carriage inwards3,000  Stock drawings 2,500  Closing stock 6,500