Closing Stock

Stock Lying in business at the end of the accounting period is called closing stock. It is valued at cost price or market price whichever is low. It is unsold or unused portion of the goods purchased. At the time of purchasing of goods, purchase account is debited and cash account is credited in case of cash purchases, or creditor account is credited in case of credit purchase. The amount of closing stock has already been entered with the purchase account. So closing account is not again included in Trial Balance. However, if the value of adjusted purchase account (purchase - closing stock) is given, the amount of closing stock will be shown in trial balance. In this case closing stock will be shown as asset in balance sheet.

There are two important cases when closing stock forms a part of Trial Balance:

(a) When purchase is adjusted (by deducting the value of closing stock from total purchases)

(b) When amount of gross profit if given with the other ledger balances.

Thank You So Much Deepak

nice explanation Mr Deepak but

(b) When amount of gross profit if given with the other ledger balances.

This  kind of instances i have not seen so far

even i do...

Thanx deepak

The correct method of accounting is :

classify Purchases - Local

               PUrchases - Interstate under Current assets -/ Closing stock a/c

Monthly value the closing balance of quantities and pass Journal entries as

Debit Consumption - Rawmaterial

Credit Purchases - Local / or Interstate

The balance shown in the Purchases / Local - interstate will reflect the closing stock in the trial balance.

Hope the procedure is correct, any comments on the same pl

thanx deepak.. nice explanation

 sir closing stock is valued at cost or market price which ever is low.so in this one which principle is followed ? is it realisation  concept or conservatism?

Mr. Deepak wud u like 2 explain (b) in detail.

Adjusted Purchase & COGS both are same?

Please give me a Formula of Adjusted Purchase

All answer given are true but we are facing  problem when company want to know profit on daily basis or monthly basis.

For this purpose  first  we calculate  our stock, thereafter make a profit and loss account  with the effect of such closing stock.

However these scenario have been changes after in Standered ERP like SAP, Microsoft Dynamic navision because in such ERP System post different entry when you purchase stock  like:-

   At time of purchasing goods ERP Post:-

                Inventory Account     DR.

                          To Supplier               

Because of that we can see inventory in our trial balance.

At the time of sale ERP postL:-

               Cost of Goods sold     DR.

                           To  Inventory Account

With the effect of these entry you  can find profit and loss account at any time.                   

deepak sahab nicely explained