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Question
Which of the following is true regarding Trading Account?
- It shows the financial position of a concern on a particular date to the owners as well as to outsiders.
- Provides information about the gross profit earned or gross loss suffered by the business during a given accounting period.
- Analysis of the Balance Sheet in the form of financial ratios can provide valuable information about the financial strength and repaying capacity of the firm.
- It helps the investor to know the earning capacity and financial health of the firm.
Options
I & IV
I & III
III & IV
ONLY II
MCQ
Assertion and Reasoning
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Solution
ONLY II
Explanation:
A trading account is prepared to ascertain gross profit or gross loss for a period by recording direct incomes, purchases, direct expenses and closing stock; it does not show financial position or investor-focused ratios.
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