What is the purpose of trading account?
A trading account is used to sell or buy capital stock in a stock market. Beforehand, the stock market worked in the open protest system. In this, merchants used hand signals and verbal communication to express their buying / selling decisions. Shortly after the stock markets implement the electronic system, commercial accounts replaced the open protest system. In this online method, buyers and sellers do not need to be physically present in the stock exchange to put orders. as a substitute, they open an operating account with a registered broker; Who carries out the trade in his name. Each trading account has a exclusive trading ID that is used to make transactions online.
Purpose of the commercial account preparation:
The gain or loss determined by an operations account is the gross outcome of the business but not the net result. If so, then a query occurs: what is the use of preparing an operations account? This account is essential due to the following advantages.
- The gross profit of a business is a very essential fact, since all business operating cost are covered with this. Therefore, the sum of the gross profit must be adequate to cover the indirect expenses of a company.
- The amount of net sales can be determined via this account. Gross sales can be decided from the sales account in the general ledger, but net sales cannot be obtained in this way. The real sales of a company are net sales, not gross sales. Net sales are obtained by subtracting sales returns from gross sales in the account of trading.
- The success or failure of a business can be determined by comparing the net sales of the existing year with those of last year. It should be noted that an increase in the quantity of net sales of the current year in the last year cannot be considered a sign of success, since sales may boost due to the increase in the price level.
- The percentage of gross profit on net sales (gross profit ratio) can be effortlessly guessed from the trading account. This percentage is essential measure to calculate the success or failure of a company. When it is compared to last year, if the rate is high, indicates success; On the other hand, if the rate is low, it is an indication of failure.
- The percentage of various items of purchase expenses (direct expenses) on the gross profit can be easily decided and by comparing the percentage of the present year with that of the previous year, variations can be easily guessed. A variance analysis will reveal its cause, which will help control the amount of expenses.
- The inventory or stock turnover rate can be decided from the trading account. The success or failure of a company can be calculated by this rate. A higher rate indicates a positive sign, that is, the goods are sold shortly after purchase. On the side, a low rate means deterioration, that is, goods are sold long after purchase.
The Best Trading Account acts as a link between a demat account and an investor’s bank account. The classification accounts require personal identification information and have a minimum margin established by FINRA.