1
Financial Statements are prepared at the end of the accounting period to determine financial performance (profit/loss) and financial position.
2
For sole proprietorships, final accounts consist of the Trading & Profit & Loss Account (Income Statement) and the Balance Sheet.
3
The Income Statement has two parts: the Trading Account (shows Gross Profit/Loss) and the Profit & Loss Account (shows Net Profit/Loss).
4
Trading Account is the first stage of preparing final accounts and records direct buying and selling of goods and services.
5
Debit side of Trading Account includes Opening Stock, Net Purchases, and Direct Expenses (wages, carriage inwards, factory rent, etc.).
6
Credit side of Trading Account includes Net Sales and Closing Stock.
7
Cost of Goods Sold (COGS) formula: Opening Stock + Net Purchases + Direct Expenses - Closing Stock.
8
The balancing figure of the Trading Account represents Gross Profit (if credit exceeds debit) or Gross Loss (if debit exceeds credit), which is transferred to the Profit & Loss Account.