Vinay B L (IPCC Student) 12 August 2019
I am in the process of learning the concept of Ledger. I am referring to a statement which is reproduced for your ready reference:
In the context of balancing of Ledger Accounts, it may be noted that, for the purpose of balancing of ledger accounts, ledger accounts may be classified into five kinds, viz., assets, liabilities, capital, revenues and expenses accounts. These five kinds of ledger accounts can be put into two groups, viz.,
(1) Permanent Accounts and
(2) Temporary Accounts.
Assets, liabilities and capital accounts are permanent accounts, Revenues and expenses accounts are temporary accounts. All permanent accounts are balanced and carried forward to the next accounting. The temporary accounts are closed at the end of the accounting period by transfer to trading account or profit and loss account.
But when I was learning the Journal entries, I have learned that the Journal entry for closing stock is
Closing Stock A/c
To Trading Account
As per my understanding of the "Modern Approach", I understand that Stock is an asset. If I go as per the above explanation which is related to Ledger, Closing Stock should become the part of Balance Sheet as it is an asset. It is not temporary in nature hence it should not be carried to the Trading account or profit and loss account.
I request the members to clarify this.
Thanks & Regards
Vinay B L
mansi r sharma (student) 12 August 2019
Utsav (CA) 12 August 2019
The correct entry for closing should be:
Stock on Hand a/c dr. (with market value-Balance sheet item)
To, Closing stock a/c (P&L Item)
The treatment is amount being the lower of cost and market value as per inventory valuation rules, so in the profit and loss account, we can get the amount of the stock lying at the godown from the purchase made earlier.
Any Query, you can contact on cautsavpatel @ gmail.com. Happy to assist in depth.