Credit Side of a Trading Account
Generally there are only two items appearing on the credit side of a trading account viz.. (1) sales and (2) closing stock of goods.
Sales: Sales account indicates the total sales (cash and credit) during the year, Some customers might have returned the goods sold to them. They are called as returns inwards. Return inwards are deducted form the amount of total sales. Only net sales for the year are shown on the credit side of trading account. If the goods have been sold but not yet dispatched, they should not be shown under sales but should be included in closing stock. Similarly if fixed asset is sold, it will not be treated as sales.
Returns Inward (Sales Returns): The debit balance of returns inward account representing goods returned by customers, is deducted form the sales on the credit side of trading account.
Closing Stock: Closing stock of goods means the value of goods which remain unsold at the end of the financial year. It is to be valued by making a list of all goods in stock which is known as stocktaking'. The principle applied for the valuation of stock is "cost or market price whichever is lower". Fixed assets or items like postage stamps or stationery are not to be included in the closing stock.
Balancing of Trading Account: After transferring all the above items to trading account, it is to be closed. If the total, of the credit side of trading account is more than the debit side total, it represents gross profit. In the reverse case, there is a gross loss. Gross profit or gross loss does not represent the true result of the business. It is only a result of purchasing and selling of the goods. The balance of trading account is to be transferred to the next account i.e., profit and loss account. Gross profit will be transferred to the credit side of profit and loss a/c and gross loss, if any, will be transferred to debit side of profit and loss account.
