Trading a/c

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Chintan Patel (Querist)

26 December 2011 is stock in hand considered as profit?
If NO,THEN WHY DOES IT APPEAR IN THE TRADING A/C TO ASCERTAIN GROSS PROFIT?

Krishna Mohan

Krishna Mohan (Expert)

26 December 2011 Stock in hand is both expenditure and income. Opening stock is expenditure and closing stock is income. Only the profit element in the stock sold is charged to tax. For this reason stock is shown in trading account.This can be illustrated like, opening stock is 1 lac.Assuming there are not new purchases and 50k stock is sold for 60k then, sales will be 60k,closing stock is 50k and GP is 10k.

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Chintan Patel

Chintan Patel (Querist)

28 December 2011 but why is opening stock taken in the trading a/c???
TO ASCERTAIN GROSS PROFIT, WONT SALES-PURCHASES BE ENOUGH?WHY IS THERE THE NEED TO TAKE OPENING AND CLOSING STOCK TO ASCERTAIN GROSS PROFIT??????
PLEASE SIR REPLY ME BACK

Krishna Mohan

Krishna Mohan (Expert)

28 December 2011 Sales for this year could be from closing stock of last year(i.e.opening stock for this year) and purchases of this year. right? Hence, opening stock has to be taken in trading account. Similarly, entire purchases could not be sold this year and hence closing stock appears. In a trading account, you can't get GP purely with sales and purchases with stock, if there be any. This is because, if entire purchases is sold, that is reflecting in sales; right? So,if some part is not sold, that need to be reflected in trading account. This is stock.

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Chintan Patel

Chintan Patel (Querist)

28 December 2011 SIR THANK YOU VERY VERY MUCH

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