Question

Trading Account is prepared on the basis of \(\underline{\hspace{1cm}}\) expenses.

Hint:

Direct expenses are essential for determining the cost of goods sold and the gross profit in the Trading Account.

Answer 1

Step 1: Recall the purpose of the Trading Account.
The Trading Account is used to calculate the gross profit or loss by comparing the sales and the cost of goods sold (which includes direct expenses like materials, labor, etc.).

Step 2: Evaluate the options.
- Direct expenses are related to the production of goods or services, so they are the basis for preparing the Trading Account. - Indirect expenses do not directly affect the production process and are accounted for in the Profit and Loss Account.

Step 3: Conclusion.
Hence, the correct answer is Direct expenses.

Final Answer: \[ \boxed{Direct} \]