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Why closing stock is not shown in Trial Balance ??

Arjun (CA final student) (70 Points)

17 August 2010

Hey friends..plss give me your views why closing stock is not taken into account for Trial Balance ?? As per my logic closing stock is derived from purchases , sales and opening stock and they are taken into account in Trial Balance and the other logic is in Trial Balance only Ledger Balances are taken...As stock is calculated from lower of cost or NRV. thus it is not taken in Trial Balance...Hoping for quick reply...........!!!

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25 Replies

CA Raj Patel (Practicing CA @ Ahmedabad) (90 Points)
Replied 17 August 2010

U r absolutely right my friend...

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jinita (Learner) (113 Points)
Replied 17 August 2010

as far as my knowledge goes,

Closing stock is already a part of ur (Purchase + Opening Stock)

Now if you write closing Stock, the effect of it will be doubled

Proof:

You give opposite effect for goods sold i.e. Credit.

But for remaining goods i.e. the Closing Stock, you have not given any credit effect earlier as the goods are not sold but with you, so you won't need to give debit effect again.

4 Like

Debasis (MBA(Finance) student>>CS) (86 Points)
Replied 17 August 2010

closing stock=openig stock+purchases-sales,hence no need to take closing stock...

1 Like

Arjun (CA final student) (70 Points)
Replied 17 August 2010

hey thank u u ppl..

Ishdeep Singh (Student) (56 Points)
Replied 18 August 2010

closing stock can be shown in trial if we pass a journal entry. i.e. Closing Stock Dr. To purchases.

its mostly given out of trial because it is deteremined at the time of finalisation of accounts and its directly entered in p/l account.

but if it is given in trial balance, then it will not be entered in p/l account. It will be shown only in the balance sheet.

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 18 August 2010

Originally posted by : Ishdeep Singh
	closing stock can be shown in trial if we pass a journal entry. i.e. Closing Stock Dr. To purchases. its mostly given out of trial because it is deteremined at the time of finalisation of accounts and its directly entered in p/l account. but if it is given in trial balance, then it will not be entered in p/l account. It will be shown only in the balance sheet.

agreed

Max Payne (employed) (2574 Points)
Replied 18 August 2010

Hi,

Closing stock is not just opening stock+purchases-sales.

This formula will completely ignore the value addition taking place in the business. (and obviously the profit margin)

It is not possible to allocate the value addition in the form of overheads with the formula.

Hence we take the closing stock physically, identify normal and abnormal losses, allocate overheads and related expenses and arrive at cost of the stock.

Then we compare with the net realiseable value, and take the lower value of cost or NRV, because closing stock value represents resource controlled by the enterprise from which economic benefits can be expected to flow o the enterprise, i.e., closing stock represents an asset.

This closing stock is shown in the trading account as an income. Why? Matching concept of accounting. The purchases and overheads incurred by you - their benefit will be obtained only in a future period. Thus it results in matching the expense incurred with the benefit to be derived in the accounting period.

Also , when u take the NRV of the stock, you are writing off a loss (diff between cost and NRV), thus recognising the correct profit or loss for the period.

6 Like

George (Chartered Accountant) (649 Points)
Replied 18 August 2010

The reason why closing stock is not taken into account in a trial balance is because a trial balance is a balance of all ledger account a given point in time.It records only transactions which have a two way effect for EG:Purchases where goods are bought against cash or credit and sales where goods are sold against cash or credit..But closing stock is not a transaction having a two way effect any given point in time.It is only an indication of the goods lying in the factory at the end of the year.It is therefore showed below the trial balance and not in the trial balance.However in order to derive at the exact gross profit the closing stock is taken into consideration in the trading account and also appears as an asset in the balancesheet.In some case the closing stock appears as an adjusted purchase account in the trial balance and in this case it does not appear in the trading account but appears only in the balance sheet.

The main reason is that we do not pass any entry for consumption. hence we donot prepare any ledger account for it.

5 Like

TRILOCHAN (SENIOR ACCOUNTANT) (698 Points)
Replied 18 August 2010

hi, closing stock not disclosed in the Trial Balance, because the Trial Balance Items are only one effect in Balance Sheet & Profit & Loss account, But in case of Closing stock there are two effects .i.e one is Tradng Credit and another one is balance sheet asset side.

Thanks & regards

TRILOCHAN

Sunali (Learner) (1317 Points)
Replied 18 August 2010

Originally posted by : George
	The reason why closing stock is not taken into account in a trial balance is because a trial balance is a balance of all ledger account a given point in time.It records only transactions which have a two way effect for EG:Purchases where goods are bought against cash or credit and sales where goods are sold against cash or credit..But closing stock is not a transaction having a two way effect any given point in time.It is only an indication of the goods lying in the factory at the end of the year.It is therefore showed below the trial balance and not in the trial balance.However in order to derive at the exact gross profit the closing stock is taken into consideration in the trading account and also appears as an asset in the balancesheet.In some case the closing stock appears as an adjusted purchase account in the trial balance and in this case it does not appear in the trading account but appears only in the balance sheet. The main reason is that we do not pass any entry for consumption. hence we donot prepare any ledger account for it.

Good One George..!!

1 Like

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Kalpesh Chauhan, (Tax Assistant (Accounting Technician CA FINAL CS PROF. PROG. B.Com)) (8311 Points)
Replied 18 August 2010

Originally posted by : Debasis
	closing stock=openig stock+purchases-sales,hence no need to take closing stock...

CA Madhukiran Reddy (CHARTERED ACCOUNTANT) (12714 Points)
Replied 18 August 2010

Originally posted by : jinita
	as far as my knowledge goes, Closing stock is already a part of ur (Purchase + Opening Stock) Now if you write closing Stock, the effect of it will be doubled Proof: You give opposite effect for goods sold i.e. Credit. But for remaining goods i.e. the Closing Stock, you have not given any credit effect earlier as the goods are not sold but with you, so you won't need to give debit effect again.

I AGREE WITH JINITA

CA Pawan Kumar Sharma (B. COM(H) M. COM CA Executive Officer) (64 Points)
Replied 18 August 2010

There is no requirment of showing closing stock into trial balance

bcoz in that case there in difference intrading account and trial balance

CA. Akhil Maangal (Head - Finance & Accouunts) (131 Points)
Replied 18 August 2010

Trial Balance is actually an extract of the ledger A/c balances and we donot open any ledger A/C for Closing Stock. Thats why it does not find any place in Trial Balance. But if anyone passes the journal entry :

Closing Stock A/c dr XXX

To Purchases A/c XXX

then Closing Stock will appear in the Trial Balance.

Another Logic is that Closing Stock is the net product of Opening Stock + Purchases - Cost of goods sold thus the value of Closing stock is automatically reflected in the Trial Balance.

2 Like

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