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What are the objectives of Trading Account?

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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    image source: istianjinelearning.org/library/files/2013/12/Trading-Game-5S-17c9rl2.jpg

  • 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.
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