As per the Golden Rules

As per the golden rules of accounting, a trading account is a nominal account. To ensure that financial statements accurately reflect a business’s financial position and performance, the golden rules of accounting guide the preparation of financial statements.

The point to note is that it is almost impossible to apply the rules of debit and credit with certain accounts such as Trading A/c, Profit & Loss A/c, etc.

As per the Modern Rules

The purpose of a trading account is to record transactions related to the purchase and sale of goods for a business. In other words, it serves as a recording and reporting mechanism for business income and expenses.

An accounting period, like a month, quarter, or year, is the time when a trading account is prepared. It is used to calculate the business’s net profit or loss. Other financial statements, such as the balance sheet, are prepared using the information in a trading account.

In summary, a trading account is a type of income statement account that is used to track and report on the income and expenses from a business’s buying and selling activities

Rules of Debit and Credit

There are three main types of accounts according to the legacy rules of debit and credit: personal accounts, real accounts, and nominal accounts. A personal account is one that is related to an individual or entity owing the business money (e.g. a customer), or owing the business money (e.g. a supplier).

A real account is one that relates to assets such as cash, inventory, and property.

Nominal accounts are accounts that relate to income and expenses, such as a “trading account”.

To summarize, a trading account is a nominal account used to record and report the business’s income and expenses resulting from its buying and selling activities.