Page 163 - ISCDEBK-XI

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C H A P T E R

Final Accounts and Concept of Trading

Account, Profit & Loss Account and

Balance Sheet (Without Adjustments),

Marshalling of Balance Sheet

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Financial Statements Financial Statements are the statements which show the financial
performance and financial position of the firm. They include Trading
Account, Profit & Loss Account and Balance Sheet.
2. Trading Account Trading Account is part of financial statements which shows gross
profit earned or gross loss incurred. It is credited with net sales,
other direct incomes and closing stock. It is debited by opening stock,
net purchases and other direct expenses, i.e., carriage inwards, freight
inwards, wages, etc.
3. Gross Profit It is excess of net sales over cost of goods sold.
4. Opening Stock Balance of goods in the beginning of the accounting year.

5. Closing Stock Goods remaining unsold at the end of the accounting year.
6. Cost of Goods Sold It is the total of opening stock, net purchases and direct expenses less
closing stock.
7. Profit & Loss Account Profit & Loss Account is an account in which all gains and losses are recorded
in order to ascertain net profit or net loss. It is credited with the amount of
gross profit and other incomes and debited with indirect expenses. The
difference between the totals of two sides is either net profit (if total of
credit side is bigger) or net loss (if total of debit side is bigger).
8. Balance Sheet Balance Sheet is also a part of financial statements. It shows the financial
position of the firm. It is a statement to which balances of assets, liabilities
and capital accounts are transferred.

9. Grouping Grouping means placing items of same nature under a common head.
10. Marshalling Marshalling is arranging the assets and liabilities in a particular
order, i.e., in order of liquidity or in order of permanence.