Question

Explain the needs of a Trading Account.

Discuss the need of the Trading Account.

Answer 1

The need for a trading account is described below.

1. Information on gross profit is provided. The trading concern’s success can be determined by calculating the gross profit margin as a proportion of sales. 
2. A trader may compare his performance year over year by comparing his gross profit to sales ratio.
3. Looking at the ratio of the cost of items sold to sales proceeds makes setting a fair price for the product easier.
4. The direct expense-to-sales ratio can help prevent unnecessary spending on these items.