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about closing stock

RAKESH (Almost CA) (2199 Points)

02 November 2008

hi can i know why closing stock is recorded in trading a/c.closing stock has not been sold but we use to show as income . suppose the trading a/c. is prepared for the year ended 31/03/2008 and there is closing stock of rs. 50000 so the credit side of the trading a/c. is meant to record direct income wat why do we record closing stock as our income though we have not sold that stock as on 31/03/2008 . why it is realised when it has not been sold . As we all know that it will be sold in the next year but why do we record the future income in the current year as our income . please do help me on this concept

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3 Replies

Aarti Garg (Ca Student) (161 Points)
Replied 02 November 2008

its a part of opening and some purchase made during the year

its carried forward as an aseet and it is recorded on cost or mkt price whichever is lower due to applicaton of

conservative concept

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Anuraag Sharma (Sr Executive Finance) (845 Points)
Replied 02 November 2008

we record it in the trading a/cn income side as acc to the conservative concept. e.g. Opening Stock = NIL Purchase during he year = Rs. 10,000 Cost of goods Sold = rs. 8,000 Profit = 20%at cost Sales = Rs. 9,600 Closing Stock = Rs. 2,000 Now concentrate on this Trading a/c opg. stck Nil Sales 9,600 Purchase 10,000 Clg. stck 2,000 G.P. 2,400 now see we debit the full cost as expenditure in the same year even it occurs even though it is not sold ( look on Purchase).......... here in the case stock of Rs. 2,000 will be sold in the next following year.....thats why as per the conservative approach we credited the same by name of clg. stock giving the imapct of no expenditure recorded for Rs. 2,000 in the current year...........simple :) n remember we never show clg. stck as our income it is shown in cr of trading a/c only to nullify the effect of expenditure which is of next year bt has been incurred in the current yr ( dnt take it as prepaid exp.)

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(Guest)

friend see,

Assets are the benefits yet to be recived in future arising due to the past events. Since it met all criteria of the difination of assets hence some value neds to be given in the financial statement (FS) to make true and fair disclouser of position of entity.

the objective of FS is to make true and fair disclouser of positin and trading a/c is only one way to disclouse the same.

Further AS -2 prescribes the recognition of stock lower of cost or MP which ever is lower. Hence by recognising the stock we are no showing any profit in the FS.

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