Gross profit appears in:

**The reasoning** Gross profit is calculated as **Sales minus Cost of Goods Sold**. This calculation happens specifically in the **Trading Account**, which is the first part of your Income Statement (or Profit & Loss Account). Think of it this way: The Trading Account shows your trading activities—what you bought (purchases), what you sold (sales), and the profit from that trading before considering expenses. The formula is: **Gross Profit = Sales − Cost of Goods Sold** Where Cost of Goods Sold = Opening Stock + Purchases − Closing Stock This gross profit figure then moves to the Profit & Loss Account where you deduct expenses to get Net Profit. **Why the wrong options tempt you** **A) Balance sheet** shows assets, liabilities, and capital at a specific date—not profit calculations. **C) Statement of affairs** is used when proper books aren't kept; it's a capital statement, not a profit statement. **D) Cash flow** tracks money movement in and out, not profit from trading. **Quick takeaway** Gross profit is born in the Trading Account—it's where you measure your pure trading success before counting any other expenses.