=Trading Account, How Constructed.= The trading account is made up by charging total inventory at the beginning of the year and purchases during the year; crediting net sales and inventory at the close of the year, the balance representing the gross profit.
=Turnover.= It is desirable to know the cost of goods sold. This is known as the _turnover_, on which percentages of profit are based. The turnover may be found by deducting the present inventory from the debit side of the trading account.
=79. Manufacturing Account.= In a manufacturing business it is very desirable to know the cost to produce the goods; and for this purpose a subdivision of profit and loss, called _manufacturing account_, is used. The manufacturing account is debited with inventory of materials at the beginning of the year; purchases of material; labor or wages in factory, and all other expenses of manufacture; and credited with inventory of materials at the close of the year. The balance represents cost of manufactured goods to the trading division.
The principal value of these subdivisions of profit and loss lies in the fact that they reveal not only the _amount_ but the _sources_ of profits and losses, which is one of the important functions of accounting.
The profit and loss account of a professional or other non-trading concern need not be subdivided as explained for a trading concern. In a non-trading business, all accounts representing revenue receipts or revenue expenditures are transferred direct to profit and loss account.
=80. Transfer of Gross Profit.= The gross profit from trading is now transferred to the credit of profit and loss account, and this account is debited with the balances of all revenue expenditure accounts. Continuing the illustration from Article 78, we have:
=81. Transfer of Net Profit.= The net gain is transferred to the credit of proprietor's account in a single proprietorship.
=82.= The accounts now open in the ledger, other than proprietor's account, exhibit all assets and liabilities of the business with the exception of the present inventory, which is included in the trading account. The amount of the inventory is transferred to the debit of a merchandise inventory account.