Financial Statements - I

Trading Account

A nominal account prepared to find the gross profit or gross loss of a business by matching direct operating revenues with direct costs like wages and factory expenses.

Profit and Loss Account

An account prepared after the Trading Account to calculate the net profit or net loss by accounting for all indirect expenses and indirect incomes of the business.

Balance Sheet

A statement of assets, liabilities, and capital on a specific date that exhibits the financial position and health of the business entity.

Direct Expenses vs Indirect Expenses

Direct expenses are incurred directly on production or purchase of goods and appear in the Trading Account, whereas indirect expenses relate to office, administration, and selling, appearing in the P&L Account.

Operating Profit

The profit earned from primary business operations before considering non-operating incomes like interest received and non-operating expenses like interest paid.