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closing stock in trial balance

ajay kkkk (Manager-Finance and Accounts) (121 Points)

15 January 2010

Hi all,

How do we show closing stock in trial balance?

pls suggest...

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12 Replies

Vivek (Finally passed CA Final...!!!!!) (1097 Points)
Replied 16 January 2010

Simple yar.... Credit closing stock A/c & debit Stock in trade A/c. Closing stock is nominal account & create it under incomes head.... Stock in trade in real account & create it under asset head.... !!

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saranraj (CA FINAL) (419 Points)
Replied 19 January 2010

Originally posted by : Vivek
	Simple yar.... Credit closing stock A/c & debit Stock in trade A/c. Closing stock is nominal account & create it under incomes head.... Stock in trade in real account & create it under asset head.... !!

Mr. Vivek can u pls explain me how come closing stock is treated as nominal account?

And what is the difference betweeen Closing stock and Stock in trade?

Vivek (Finally passed CA Final...!!!!!) (1097 Points)
Replied 19 January 2010

Hi Saran, Your question i can understand... Closing stock is an asset... Then how come it can come to Nominal account... But the problem is sales tax authorities always insist to show closing stock in trial balance... How to bring it to trail balance...? Only the above option is left.... right...? Even if you explain them 1000 times that closing stock wont come to TB, they wont understand it.... So, we have suggested this to our client.... Do you have any other option in such situation...?

Any how i appreciated your comment.. Thank you..

kushal ( ) (88 Points)
Replied 20 January 2010

generally closing stock does not appear in the Trial Balance BECAUSE seperate account for stock is not opened in general ledger. closing stock represents the balance of goods unsold, out of opening stock and purchases.

The closing stock appears in the trial balance only when it is adjusted against PURCHAES by the entry:-

Closing Stock A/c .........Dr

To Purchases A/c

I have taken all this from book Hanif & Mukherjee. And I agree with this view only

Computationaly there is nothing wrong in treatement suggested by Vivek but CONCEPTUALLY it is nothing but DISASTER. Remember we are studying accounting and not arithmetic the ultimate goal is not just finding right amount but along with finding right amount we have to adhere to the accounting concepts, principles, conventions too.

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saranraj (CA FINAL) (419 Points)
Replied 20 January 2010

Agree 100% with kushal

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triumph-CMA (Chartered Accountant) (503 Points)
Replied 21 January 2010

You can not change the nature of any account according to your convenience. Please do respect the concepts.

When closing stock is shown in the trial balance, then this is due to an adjustment made in the books and by reason of this adjustment closing stock does not appear in the Income statement.

By this adjustment we get the cost of goods sold which is shown in the debit side of the Income Statement.

This Item substitutes

1.Opening Stock;

2. Purchases; and

3. Closing Stock from the Income Statement.

kushal ( ) (88 Points)
Replied 21 January 2010

I agree with sir. He made the concept crystal clear

Thanks A lot sir

samip karpe (accounts assistance) (152 Points)
Replied 27 January 2010

Hi Vivek, Thanks. nice explaination

Anusha (Practice) (25 Points)
Replied 12 January 2011

can some one make me clear of what is the difference b/w a company and a corporation?

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evernn (beijing) (21 Points)
Replied 12 January 2011

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HARI SHANKER KUMAR (Sr.Acc.Splist-DuPont) (164 Points)
Replied 04 February 2011

HI Anushalatha....

A company is a separate legal entity registered under the Companies Act 1956. it is an association of persons for a common business objective.

In the context of our country, a corporation involves the government. Where a company is wholly or substantially owned by the Central/State Govt., such company is referred to as a Corporation.

to put it simply....

"Every corporation is a company.... But company is not a corporation...!"

I hope my CCI fraternity will accept my explanation... comments are welcome..!