Stock accounting in terms trading

Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 12 September 2011

Dear Dharmendra,

Got only a vague idea about your query. Could you explain with an example so that I/Other members can better help you.

Regards,

Bhaskar

Jayesh (.) (38 Points)
Replied 12 September 2011

Originally posted by : Dharmendra
	Dear friends, I am a non commerce post graduate but working in accounts department for a long period, by experince i have learnt a lot and i have done migration of accounts from one software to other ERP software. I have a doubt, i kindly request you to give me clarification, In case of Manufacturing company, In case of material purchases ie. we book the Purchase Journal ie Invoice as Dr. Rawmaterial Purchase & Cr. Vendor payables and we book the consumption by stock journal (Op.+Pur-Closing=Consumption) or all issues are A/cted as consumptions in respect . In case of Trading activity the Ist part ie Booking Invoice Dr.Trading Material stock Cr. Vendor payable. How about the stock entry? what entry i should pass for a stock ?, i know sale entry as Cr. Sales and Dr. Debtors Recvbl. I m confused, pl. let me know. Thanks

Dear,

In double entry system of accounting, Stock has no effect while Ledger Posting

rather a Stock Register (not Stock Account) is maintained for the purpose of valuation of Closing Stock in order to arrive at true Gross Profit.

At the time of Trial Balance preparation Opening stock is taken at Debit Site

if New Business is started Opening Stock comes as 0 in Trial Balance Debit side

Now most important is Closing Stock and its valuation

it is most important in order to arrive at True and Fair amount of Gross Profit

Closing Stock is (as I have earlier said it is not a Account having effect of ledger posting) having Two effect at the time of preparation of Final Accounts after sucessfully closing of Trial Balance

1. Trading Account Credit side Closing Stock comes

2. Balance Sheet Asset Side Closing Stock comes

At next year this closing stock appeares as Opening Stock in trial balance

CA Gaurav Mittal (Partner) (1230 Points)
Replied 12 September 2011

Sir,

Firstly if you have migrated to tally then tally have a option for stock vouchers under which you can book consumption and production report. Also if you have migrated to any other package it would be having a option of stock query. Otherwise all you can do is to create a Account of Work In Progress and Debit the same and credit the Raw Material Account Material. ( Please mind that you are only Debiting & Crediting only Stock Accounts Not any Party or purchase Account.)

In Case of any furthur Query feel free to contact on +91-9971312299

CA Gaurav Mittal

B.N.Dharmendra (Senior Manager Indirect Taxation) (136 Points)
Replied 12 September 2011

Sir, Thanks for ur feedback. From ur reply i have understood.

In case of Trading Business ie. The Stock Book is maintained as Stock Register outside the TB, its not the way we do in the Mfr. Business were TB contains Consumption in P&L A/c. & Closing in B/S Cr.Assets (Op.Stock + Purchase - Closing Stock=Consumption) normally FIFO method is adopted.

In Trading Business, The accounting entry will be like this

Dr. Purchase A/c Cr. Vendor payable A/c.

Cr. Sale A/c Dr. Receivable A/c. and for closing Stock

entry is made as Cr. Closing Stock A/c in P&L A/c and Dr. Closing Stock A/c in B/S under Cr.Assets,

with the value arrived in Stock Register. but the Closing Stock Value under the Current Asset will be carried over as op.stock in next yr. TB. ie. null effect in the current year TB. I m right.

Thank you

ARUN KUMAR (Financial Consultant ) (992 Points)
Replied 12 September 2011

I Did not understand your problem.

B.N.Dharmendra (Senior Manager Indirect Taxation) (136 Points)
Replied 12 September 2011

Dear Mr. Arun Kumar

i know

Accounting purchase Dr. Purchase A/c. Cr. Vendor payable

Accounting Sales Cr. Sales A/c. Dr. Customer receivable

The difference between the above two will have the effect in P&L.

My doubt is how to Account Stock in TB in the case of Trading Business? which account Debit ( ? in P&L) and Credit (Cr.Asset in B/S)?

Thanks

B.N.Dharmendra -

bn.dharmendra @ gmail.com - Vietnam

Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 12 September 2011

Dear Dharmendra,

The difference between Trading and Manufacturing fairm is, certain items will be eliminated eg. WIP, Wages, Raw-materials etc. Other than that, treatmenet in trading account will be:

Trading a/c Dr.

To Opening Stock

To Purchase

and

Closing stock a/c Dr

To Trading Accounting.

The effect would be Cost of Goods Sold = Opening Stock + Purchses - Closing Stock which would be deducted from sales to arrive at Gross Profit.

Moreover, these closing stock can be shown as Current Asset on Balance Sheet and brought forwarded to next year as opening stock.

Hope this would help a bit.

Regards,

Bhaskar

srinivass (CA Final) (2466 Points)
Replied 12 September 2011

Originally posted by : Bhaskar Unnikrishnan
	Dear Dharmendra, Got only a vague idea about your query. Could you explain with an example so that I/Other members can better help you. Regards, Bhaskar

Ateeq (CA - Final) (213 Points)
Replied 23 September 2011

I agree with Gaurav.

I.e., to say incase you want to give effect to the stock create a separate ledger with respect to that as an asset or current. (Like Work-In-Progress). Then Keep on passing the entries.

Secondly your point does not have any relation with the books of accounts as you are asking about recording of stock movement. So, that will be dealt with costing records i.e., cost accounting. In this method of accounting your issues will be addressed.

If the company where you are working is not on a large scale and you require only to control the stock mention stock movement register. Sample I have attached to this mail for your reference. Kindly modify as per your requirement.

Attached File : 95118 836360 sample stock movement register.xls downloaded: 148 times