Financial Statements - I

Trading Account

A nominal account prepared to find out the Gross Profit or Gross Loss of a business by matching direct trading expenses and direct incomes with net sales.

Profit and Loss Account

Prepared after the trading account to ascertain the Net Profit or Net Loss of the business by accounting for all indirect expenses and indirect incomes.

Balance Sheet

A statement of assets, liabilities, and capital on a particular date, reflecting the financial position and health of the business entity based on the accounting equation.

Direct Expenses

Expenses incurred directly in connection with the purchase or manufacture of goods, such as carriage inwards, wages, and factory power, debited to the Trading Account.

Indirect Expenses

Expenses related to the administration, office, selling, and distribution of goods, such as salaries, rent, and advertising, debited to the Profit and Loss Account.

Cost of Goods Sold

The direct cost attributable to the production of the goods sold by a company, calculated as Opening Stock + Net Purchases + Direct Expenses - Closing Stock.