QS Study

Advantages of Trading Account

The primary step of final account is trading account. It is nominal account which is prepared at the end of accounting year. Trading account helps to find out gross earnings or gross loss during the accounting period. A trading account is alike to a traditional bank account, holding cash and securities, and is administered by an investment trader.

Following are the Major Benefits or Advantages of Trading Account

  • Trading account is supportive in establishing the relationship the relationship between the gross profit and direct expenses with the help of direct expenses are reasonable and adequate.
  • It shows the relationship between gross profit and sales that helps to measure profitability position.
  • Cost of goods sold can be ascertained from the information given in the trading account and is used to calculate the gross margin when deducted from sales.
  • It shows the ratio between cost of goods sold and gross profit.
  • It gives the information about efficiency of trading activities.
  • It helps to compare between cost of goods sold and gross profit.
  • It provides information regarding stock and cost of goods sold.

A Trading Account permits you to place your own personal trading confines which are a enormous benefit, particularly for new traders. Traders also have the option to use Limit Orders to decrease hazard in their investments.