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  2. In a trading concern, purchases are the expenses of buying finished goods to sell them further. Suppose any of these purchased goods are returned to the supplier. In that case, the corresponding amount is titled as ‘purchase returns’ or ‘returns outward,’ and is subtracted from purchases to obtain net purchases.
    Closing stock: 20,000
    Profit and loss account Account: 90,000
    Sales: 70,000
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    What is the purpose of a trading account?The purpose of the trading account is to show the gross profit or gross loss made in a particular time period. The following are some key points to understand about a trading account: It is a temporary account that records sales and purchases of goods/services.
    What is a trading account in merchandising?It is normally prepared by a merchandising concern which purchases and sells the goods during a particular period. The trading account shows the gross profit or gross loss during the accounting period. Trading account is based on matching the selling price of goods and services with the cost of goods sold and services rendered.
    What is an example of a trading account?For example, one account may be used for trades related to a pension, while another is used for general investment purposes. A trading account is an investment account. It contains the cash and securities holdings of an investor. Trading accounts are commonly used by day traders.
    What is a trading account balance?The balance of the trading account indicates the gross profit or gross loss. Credit balance represents a gross profit, while debit balance represents a gross loss. Finally, in a trading account, gross profit or gross loss is transferred to the profit or loss account.
     
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