Stock inclusion in profit

This query is : Open

CA Ankith Jain (Querist)
Follow

24 September 2016 Dear all, a very simple question, can anybody tell me why opening stock and closing stock are considered for deriving profit? Ex: sales closing stock-opening stock-purchases-cost=profit. Whereas actually the profit is sales-costs.So why stocks are considered

Sandeep Dharar

Sandeep Dharar (Expert)
Follow

26 September 2016 Ankith, u r right to some extent. Actually Income - expenses = profit. But, let us suppose u have stock of (say books) 50 units on opening date, u purchased 70 more units, so u have now 120 units in hand. Suppose u received an order for 85 units, so now u have to take 15 extra units from opening, coz u have purchased 70 units only. So u must have to consider opening stock, as ur turnover includes opening units. Regarding expenses u know that we must deduct exp. from income to calculate profit. And in the same way u must value closing stock too, coz u don't know that in future the same situation arise again. Hope u get my point.

CA Ankith Jain

CA Ankith Jain (Querist)
Follow

26 September 2016 Correct.Thank u sir.

Upgrade to CAclubindia Pro. Subscribe Now!