15 August 2010
Why Closing Stock in spite of credit Balance Shown as a assets in Balance Sheet? And if it is a assets then why we show it in Trading A/c!! Plz explain the logic behind it!!! I'm confused abt it..
15 August 2010
If u purchase a trading item it is debited to your purchase a/c and credited to crs/bank a/c and correspondingly the closing stock value increases. So in the trading a/c u have purchase and so u need to credit the stock in the P & L a/c so that the correct picture is seen of the trading a/c. Secondly the stock is your asset and every credit has a debit we need to debit the stock and since the same is your asset the same is shown in the balance sheet on the asset side.
15 August 2010
and closing Stock has Credit Balance (that is why it shown on the cr. side of Trading A/c) n sir thanks for ur response.. Its my first query on CAclubindia
15 August 2010
closing stock also has debit balance only since the same only becomes opening stock in the next year.
why closing stock is shown in the balance sheet has the follwiing reasons:
1. while determining correct profit we have to evaluate and segregate unutilised stocks which are charged off to revenue. 2. those segregated items are shown as credit item in P&L account to reverse/neutralise the cost charged to P&L A/c. 3. since opening stock is utilised during the current year, it gets its value exhausted and the clsoing stock replace it with a fresh value of the stocks at the year end. 4. stock is an asset and hence shown as such in the balance sheet 5. stock is not an expense and hence shown on credit side of P&L
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