Sadia Hussain Unit 5
D2 - Evaluation
“As the name suggests they are the final accounts which are prepared at the last stage of an
accounting cycle. Final accounts show both financial position of a business along with the
profitability, they are used by external and internal parties for various purposes.” The final accounts
include all the journal entries used to close the books; they are used as a final stage of the
accounting cycle. The final accounts show the financial position of a company, and can be used to
make changes, decisions and even used by the company’s stakeholders such as banks, investors and
suppliers. The final accounts include the trading account, the profit and loss account and balance
sheet.
Trading account
“A trading account can be any investment account
containing securities, cash or other holdings. Most
commonly, trading account refers to a day trader’s primary
account.” The trading account is financial statement that
shows the cost of trading and purchases and the goods to
be sold. In the trading account, it includes the sales,
purchases and the cost of goods sold. One of the elements of the trading account is the sales. A sale
happens when a business exchanges their goods for money. In order to find the total amount of
money a business has made from their sales, they have to multiply the number of goods sold by the
price of the goods. Sales figure is extremely important for companies to know as it shows them
weather they are performing well or not, so they can make changes such as increase the price of the
goods or try to increase the number of goods sold if they are making a less amount of money.
Another element of the trading account is the purchases; these are the purchases that the company
has made from outside sources such as another business or a supplier. For example, in order to
produce goods a company may need raw materials; these are then bought from the suppliers who
the business pays in return. The trading account also includes other expenses leaving the business
such as wages, drawings etc. The purpose of a trading account is that it holds money for the
company’s financial goals. Investors open a trading account to buy or sell stock. “The purpose of an
account could focus on day or short-term trading on the stock market, buying and
holding long-term stocks, or handling investments for retirement savings.”
Profit and loss account
“Profit and loss accounts show your total income and expenses, and also shows
whether your business has earned more income than it has spent on its running costs.”
After preparing the trading account, companies then prepare the profit and loss
account which is another income statement part of the final accounts. The profit and
loss account includes the details of the organisations transactions, showing how much
profit or loss the business have made by subtracting the total of the money going out
from the income; it shows the gross profit and also the net profit. Profit and loss
account helps organisations to see how well they are doing, it shows their financial
health and performance for a period of time such as a month, year etc. Businesses can
view the profit and loss account to see if they have achieved their goal on making a
certain amount of profit, and so they are able to make changes and improvements if
the business is not doing so well such as if they are making a loss. It also helps
shareholders of the company to see how well they are doing by viewing the P&L.
Profit and loss account includes the sales revenue, the cost of sales and how much gross profit the
1
D2 - Evaluation
“As the name suggests they are the final accounts which are prepared at the last stage of an
accounting cycle. Final accounts show both financial position of a business along with the
profitability, they are used by external and internal parties for various purposes.” The final accounts
include all the journal entries used to close the books; they are used as a final stage of the
accounting cycle. The final accounts show the financial position of a company, and can be used to
make changes, decisions and even used by the company’s stakeholders such as banks, investors and
suppliers. The final accounts include the trading account, the profit and loss account and balance
sheet.
Trading account
“A trading account can be any investment account
containing securities, cash or other holdings. Most
commonly, trading account refers to a day trader’s primary
account.” The trading account is financial statement that
shows the cost of trading and purchases and the goods to
be sold. In the trading account, it includes the sales,
purchases and the cost of goods sold. One of the elements of the trading account is the sales. A sale
happens when a business exchanges their goods for money. In order to find the total amount of
money a business has made from their sales, they have to multiply the number of goods sold by the
price of the goods. Sales figure is extremely important for companies to know as it shows them
weather they are performing well or not, so they can make changes such as increase the price of the
goods or try to increase the number of goods sold if they are making a less amount of money.
Another element of the trading account is the purchases; these are the purchases that the company
has made from outside sources such as another business or a supplier. For example, in order to
produce goods a company may need raw materials; these are then bought from the suppliers who
the business pays in return. The trading account also includes other expenses leaving the business
such as wages, drawings etc. The purpose of a trading account is that it holds money for the
company’s financial goals. Investors open a trading account to buy or sell stock. “The purpose of an
account could focus on day or short-term trading on the stock market, buying and
holding long-term stocks, or handling investments for retirement savings.”
Profit and loss account
“Profit and loss accounts show your total income and expenses, and also shows
whether your business has earned more income than it has spent on its running costs.”
After preparing the trading account, companies then prepare the profit and loss
account which is another income statement part of the final accounts. The profit and
loss account includes the details of the organisations transactions, showing how much
profit or loss the business have made by subtracting the total of the money going out
from the income; it shows the gross profit and also the net profit. Profit and loss
account helps organisations to see how well they are doing, it shows their financial
health and performance for a period of time such as a month, year etc. Businesses can
view the profit and loss account to see if they have achieved their goal on making a
certain amount of profit, and so they are able to make changes and improvements if
the business is not doing so well such as if they are making a loss. It also helps
shareholders of the company to see how well they are doing by viewing the P&L.
Profit and loss account includes the sales revenue, the cost of sales and how much gross profit the
1
