Financial Statements - I

Trading Account

A nominal account prepared to find out the Gross Profit or Gross Loss of a business by matching direct incomes with direct expenses relating to manufacturing or trading goods.

Profit and Loss Account

An account prepared after the Trading Account to ascertain the Net Profit or Net Loss of the business by taking into account all indirect expenses and indirect incomes.

Balance Sheet

A statement of assets, liabilities, and capital of a business on a specific date, reflecting its true financial health and adherence to the accounting equation.

Direct Expenses

Expenses directly related to the purchase or production of goods, such as wages, carriage inwards, and factory rent, which are debited to the Trading Account.

Indirect Expenses

Expenses incurred for the administration, selling, and distribution of goods, such as salaries, rent, and advertising, which are debited to the Profit and Loss Account.