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Why is trading account nominal in nature ?

Daivik Bhalchandra Nakte (4 Points)

15 February 2016

Sir will u please explain me why is trading account nominal in nature ??

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4 Replies

Dheeraj Rinwa (Student) (98 Points)
Replied 15 February 2016

Because it determines the Gross profit and loss and it relates with the entity's income expenditure. You can check with the other categories for your satisfaction that will it fit into any other category For ex let's talk about personal account which are for natural and artificial persons viz bank ram shyam etc Real account for assets related items viz cash fixed assets etc. So where it will go obviously to nominal category. Hope it clears your doubt.

Zuned Charaniya (2 Points)
Replied 12 January 2017

So sir, according to that logic why is closing stock recorded. It ain't our income is it?

CA. Sunil Gokhale (Teacher) (1484 Points)
Replied 13 May 2017

Debit side of Trading account should show the cost of goods sold so that profit can be determined. As all goods are not sold we credit Trading account to reduce the debit. This is an adjustment entry.

tejaspatil (others) (22 Points)
Replied 04 August 2022

As the financial intervals, like monthly, quarterly, or annually, a company prepares its financial statements. The trading account is the first pillar in this process. The reason for this lies in the purpose of a trading account. A trading account facilitates all the trades a company executes throughout the financial period. So, all the profits, losses, or revenue calculations take place using the transactions carried out from the trading account. A nominal trading account is available with many prominent financial organisations like IIFL Securities. However, the estimates from a trading account's activities only give us a gross profit or loss.

Gross profit does not include the cost incurred for making the service or product available to customers. Or in other words, it does not include the input cost of a business. This is the reason the trading accounts are nominal in nature.The revenue-generating trades include sales and closing stocks which are credit inputs. Contrarily, the cost of raw materials, opening stock, and other expenditures are debit inputs. As profit or loss calculations based on trading account do not take into account debit amounts, we consider the trading account as a nominal account.

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