The preparation of Trading account fulfills the following objectives:
- While fixing the selling price of merchandise, trader adds a fixed percent of cost as profit to the cost and later on by preparing the trading account verifies whether the projected profit has been earned or not.
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- It gross profit is found to be less than the projected profit its reasons are analyzed and proper control is exercised in future.
- It Gross profit is more than projected profit, efforts are made to maintain it in future.
- It Trading Account discloses loss then it will be prudent to close down the business may be temporarily till the conditions improve, otherwise, it is possible that losses may exceed.
- Trading account also helps to ascertain the percentage of direct expenses over sales.
- Trading account also provides the percentage of gross profit to sales.