Closing Entries in Trading and profit and Loss Account Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

if you notice trading account is an
account it is a final account so we have
the trading account is actually prepared
to certain what is called closing
entries all our nominal accounts income
and expense account need to be closed at
the year-end the purchases and direct
cost these accounts are closed by
transfer to trading account sales
account also closed by transfer to
trading so what are the entries entries
is exactly we have already prepared the
ledger account I am explaining now the
accounting entries behind the trading
account trading account debit to opening
stock that is why we had opening stock
on the T side two purchases - wages -
carriage in word - other direct costs -
sales return only we don't normally
debit the trading account with the
scenes written instead we show it as a
deduction from sales so that we know
that net sales
similarly sales account debited purchase
return account debited abnormal loss
account debited closing stock account
debited goods in transit if any account
debited true trading account so what
comes on the credit side of the trading
account sales comes on the credit side
of the trading account purchase return
is actually shown as a deduction from
purchases not not shown not debited so
that this is at one glance we understand
exactly how much is the net purchases
abnormal loss of goods why is it
abnormal loss of goods this account and
the closing stock account are two
accounts which are created and this
point in time these two accounts are
created Isis created at the time of
preparation of the trading account they
don't really appear in the trial balance
we don't have an account for it
goods in transit also this also at the
time of preparation of the trading
account we value we count physically the
amount of stock we see how much was the
abnormal loss of goods we again see if
there is any goods in transit and then
we create one two three accounts debit
the account and credit into trading
account why is it being credited to the
trading account because these these
goods are all included in the purchase
cars but actually these are not goods
that we could sell we are ending here to
ascertain gross profit sales has to be
compared with the exact number of units
with a purchase cost of the units which
are sold so if we have 10,000 units sold
in order to get the cross profit we must
compare the cost of 10,000 units it
would not be right to compare the cost
of 12,000 units with the cost of 10,000
units sold because 2,000 units might
have been lost by five so what are the
closing entries trading account is
debited trading account debit to opening
stock if I prepare as we had seen before
trading account is debited to opening
stock to purchases to all direct costs
whether it's wages carriage invert other
direct costs and as I said we don't save
to sales or return but then here we have
buy sales sales account debit throughout
the sales account the ledger account
sales account it is an income account it
has a credit balance it's closed by
debiting the sales account and
transferring it to trade account here we
have less purchase offer and
we have less sales instead of taking
sales return to the debit side instead
of taking Birch's return to the credit
side of the trading account purchase
return is shown as a deduction from
purchases and sales return issued as a
deduction from and by closing stock by
abnormal loss if any buy goods in
transit the net result is gross profit
as we had seen before
this cross profit is transferred to
profit and loss account transferred to
profit and loss account so trading
account debate to profit and loss
account with the amount of cross profit
or profit and loss account debit to
trading account with the amount of gross
loss with the amount of cross loss