Terminologies Used In Trading Account - SS1 Accounting Lesson Note
Trading accounts contain several important terms and concepts that are important to understand. Understanding how to use these terminologies is important for traders and business owners as it helps them to track their trading activities, manage inventory, and calculate profits and losses. Some of the primary terminologies used in trading accounts include:
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Opening stock: This refers to the value of inventory or stock held by a business at the beginning of a trading period, such as a month or a year.
Closing stock: This refers to the value of inventory or stock held by a business at the end of a trading period, such as a month or a year.
Purchases: This refers to the total amount spent by a business on purchasing inventory or stock during a trading period.
Sales: This refers to the total amount received by a business from selling inventory or stock during a trading period.
Cost of goods sold (COGS): This refers to the cost of producing or purchasing the inventory or stock that was sold during a trading period. It is calculated by subtracting the value of closing stock from the sum of opening stock and purchases.
Gross profit: This is the profit earned by a business from its trading activities before deducting any expenses. It is calculated by subtracting the cost of goods sold from the total sales revenue.
Net profit: This is the profit earned by a business after deducting all expenses, including operating expenses, taxes, and interest.