Explain The Importance Of Preparing Trading Account?
It provides information about gross profit. The current figure can be compared with earlier ones and reasons found for variations. Accordingly plan can be launched for future growth of the firm. Ratio of gross profit to sales can help the trader to improve his business administration. Ratio of direct expenses to sales will help the trader to control and rationalize the expenses. Comparison of 'stock in hand' of the current year with those of the previous years. Reasons for variation can be found out and steps can be taken to adjust things more profitably. Ratio of cost of goods sold to total sale proceeds can help the trader in fixing the prices of his products. Precautionary measures can be taken to avoid possible losses by analyzing the items of direct expenses.
