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Journal entry of closing stock


Vinay B L (IPCC Student)     12 August 2019

Vinay B L
IPCC Student 
 43 points

| My Other Post

Dear Members,

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

mansi r sharma (student)     12 August 2019

mansi r sharma
student 
 5 likes  67 points

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You are correct that every temporary A/C gets closed and transferred to Trading or P&L A/C. Like Purchase a/c gets closed Trading a/c ...........dr To purchase a/c . Sales a/c .....dr To Trading a/c . But closing stock is an asset also As well as it is necessary to show in trading ac to get correct profit Thus all temporary accounts are reversed and then transferred to Trading / P & L account. But closing stock is not reversed because by debiting it we are creating one asset and crediting in trading account we ought to show correct profit.
1 Like
Utsav

Utsav (CA)     12 August 2019

Utsav
CA 
 1 likes  27 points

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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.

1 Like
Vinay B L

Vinay B L (IPCC Student)     12 August 2019

Vinay B L
IPCC Student 
 43 points

View Profile | My Other Post
Thank you very much for your reply
M Venkat

M Venkat (CA finalist)     18 January 2021

M Venkat
CA finalist 
 7 likes  441 points

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can someone help me out that , Closing stock at the balance sheet date can be valued including the tax components like GST?


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