The trading account does not __________.

calculate gross profit

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compare the sales with the cost of those sales

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include the cost of goods sold

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show the effect of profit on capital

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Solution

The correct option is D show the effect of profit on capital
A trading account helps in determining the gross profit or gross loss of a business made strictly out of trading activities. Only direct revenue and direct expenses are considered in it.
It is prepared mainly to know the profitability of goods. In this indirect expenses and indirect revenue are not included. So, it can not show the effect of profit on capital. In Capital net profit is added.

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