Various types of account are present in India and trading account is said to be one of them. An account prepared to determine the gross profit/gross loss of a business enterprise is known as the trading account.
Need For Trading Account:
Trading account is fast creating waves in the ever-changing financial market in India. Growth of small and big business has led to the increasing need for the trading accounts in India.
Some of the major reasons would be as follows:
- Gross Profit is major factor and must meet the expense of the company.
- Helps in obtaining the number of net sales of a company.
- Gross profit from the net sales can be utilized from the trading accounts.
- Percentage of gross profits on net sales could be easily ascertained from trading accounts.
- Stock turnover ratio can be easily ascertained by trading account.
Major Advantages of Trading Account:
Some of the advantages of trading accounts are as follows:
- Shows relationship between gross profit and gross sales to measure profit.
- Helps to show ratio between the goods sold and gross profits.
- Helps to avoid direct expenses, and takes the expenses dealing with making products.
- Helps you to analyse new platforms and understand your trade/markets.
- Gives details about various trading activities in the markets.
- Details about the over-stocking/under-stocking can be known in order to act in a rational manner.
- Progress can be analysed relating to gross profit ration, year after year.
- Excellent stock turnover ratio can be determined from trading account.
Disadvantages of Trading Account:
Trading account is the major factor of our economy and some of the negative points are:
- You require huge brokerage charges in setting up the trading account.
- Loss one incurs will be a huge one and difficult to come back.
- Less control on your investment.
- Less knowhow, resources and the lack of professional knowledge can hamper your investments.
- Markets are very unpredictable and hence experienced traders will find themselves in troubled waters.
- Hence I would recommend everybody to have the complete financial knowledge on their fingertips, before venturing into a trading account.
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