Trading Account: An account Is prepared to know the gross profit or gross loss of the business, at the end of the accounting year. which is known as Trading Account. Trading Account indicates profit or loss only for transactions related with goods. therefore the result is known as gross profit or gross loss.
Following particulars to be shown In Trading Account:

1. Debit side: OpenIng stock of goods. Net purchases of goods (total purchases minus purchase returns and Goods going out other than sales). direct expenses relating to purchase of goods (like wages, carriage inward, freight. octroi, etc.) are shown I recorded on the debit side of Trading Account.

Note: If it is a manufacturing unit, the expenses related to productions are also shown on debit side of Trading Account. e.g., productive wages, royalty, factory expenses. depreciation of factory building. plant and machinery, oil, grease,
etc.

2. CredIt side: Net sales (total sales minus sales returns), sale of Scrap goods and Closing stock of goods are shown on the Credit side of Trading Account.

Closing Entries: Trading account is an account which include the matter which is nothing but a posting of some journal entry. These journal entries are the closing entries for the accounts like purchase of goods, sales, purchase return, sales-return, direct expenses of purchase (Accounts-related with the goods and expenses of purchase), etc. And the Trading Account is prepared with the help of posting of the above accounts.

(1) The closing entry, for opening stock, purchase, sales return, direct expenses of the purchase like wages, carriage inward, etc. which have debit balance, is as follow:
Trading A/c Dr …………………..
To Opening stock A/c …………………..
To Purchase A/c …………………..
To Sales return A/c …………………..
To Wages A/c …………………..
To Carriage inward A/c …………………..
To Other direct expenses A/c …………………..
(Being the closing entry to close the accounts of debit side of Trading Account.)
Effect: As a result of this journal entry, all the accounts which are shown on credit side (which have debit balance) will be closed and to be written on the debit side of the Trading Account.

(2) The closing entry for sales, purchase return, goods going out for any other reason other than sales (like stolen away, burnt by lire, withdrawn for personal use, given for charity, given as samples), etc. which have credit balance in the book, is as follows :
Sales A/c Dr …………………..
Purchase return A/c Dr …………………..
To Trading A/c …………………..
(Being closing entry to close the accounts of the credit side of Trading account.)
Effect: As a result of this journal entry, Sales A/c, Purchase return A/c and goods going out for the other reason will be closed and balance of the concern account will be recorded on credit side of the Trading Account.

(3) For closing stock, brought into the books of accounts:
Closing stock A/c Dr …………………..
To Trading A/c …………………..
(Being the adjustment entry passed for the closing stock.)

Explanation: Closing stock of goods account is not there in any book. At the end of the accounting year, to prepare the final accounts, a list of the goods in stock is prepared and the value of it, is decided. This decided value, normally, is based on purchase value. Therefore, while writing the account regarding closing stock value, the market value or book value whichever is less, is to be considered. For this, a journal entry is to be passed which is known as adjustment entry. For the closing stock, one effect is to be given on the credit side of Trading Account and another effect is to be given on the Assets side of Balance Sheet, because closing stock is considered as an asset.

(4) A journal entry to close the Trading Account: If this account shows the credit balance, then it is known as Gross profit and if it shows the debit balance, then it is known as Gross loss. By transferring the Gross profit or Gross loss to Profit and Loss Account, Trading Account will be closed as below:
(A) If Gross profit is there :
Trading A/c Dr …………………..
To Profit and Loss A/c …………………..
(Being gross profit transferred to Profit and Loss account.)

(B) If Gross loss is there :
Profit and Loss A/c Dr …………………..
To Trading A/c …………………..
(Being gross loss transferred to Profit and Loss Account.)