Topic 5- Trading Accounts

Question 1

Explain the purpose of trading accounts.

Answer 1

The purpose of a trading account is to facilitate the determination of the gross trading profit (gross profit) arising from an enterprise/production line/service activity. The gross profit is the profit resulting from the trading and/or ‘internal’ use of product/service item (livestock, grain, fodder, product x or service z), during the particular production period under consideration.

Question 2

List the items contained in the following:

- Livestock trading account

Answer 2

• The beginning of year (opening) number and value of livestock in the enterprise.
• Purchases: the number and cost
• Transfers in: number and value
• Births (natural increase): number
• Sub Total: number and value
• Sales: number and value
• Deaths: number
• Rations: number and value
• Transfers Out: number and value
• The end of year (closing) number and value of livestock in the enterprise
• Sub Total: number and value
• Gross Trading profit

Question 3

List the items contained in the following:

- Crop trading account

Answer 3

-The beginning of year (opening) number, per unit value and total value of the item Purchases: quantity and cost
-Production: quantity
-Sub Total: quantity and value
-Sales: quantity, per unit value and total value for both sales where the cash has been received and the sales where the cash is still owing.
-Losses: quantity
-Seeds used: quantity and value
-Fed Out: quantity and value
-The end of year (closing) quantity, per unit value and total value of item
-
Sub Total: quantity and value
- Gross Trading profit

Question 4

What are the sources of information when deriving a livestock trading account and a crop trading account.

Answer 4

The sources of information when deriving livestock and crop trading accounts will be the respective enterprise livestock/crop schedule.
The sources of information when deriving a non agricultural trading account wilt be the associated inventory schedule, cash flow statement and other record regarding freight in and exercise etc expenses.

Question 5

Which other components of the financial analysis utilise the information contained within trading accounts?

Answer 5

The components of the financial analysis which utilise the information contained within trading accounts are:
- the profit and loss statement
- the closing balance sheet.
In addition it should be noted that some information in these schedules should also correspond to information in the livestock/crop/inventory schedule, the opening balance sheet and the cash flow statement.