Normally , all goods purchased or produced during the accounting year are not sold by the end of the year . The goods remaining unsold at the year end is closing stock . Since closing stock is known only at the end of the year, it is not included in Trial Balance .It is given outside the trial balance in the form of additional information . Gross profit or Gross loss is know if Closing Stock is brought into the final Accounts. Closing Stock is valued at cost or net Realisable value (market price) whichever is lower . For total value of closing stock say Rs 50,000, following adjustment entry will be passed at the end of the year :
Closing Stock A/c. Dr. ..... 50,000
To Trading A/c 50,000
( Being the Closing Stock recorded in the books )
Thereafter , Closing Stock is shown in the final accounts as follows :
1. It is shown on the credit side of Trading Account as a separate item , and
2. Stock being debit balance is shown on the assets of the Balance Sheet as a separate item as Current Assets .
Adjustment Purchase and Closing Stock :
Adjustment Purchase means that opening stock and closing stock have been adjusted inthe purchase and a single amount appear in the Trail Balance as ' Adjustment Purchase '. As a result of this entry , closing stock is accounted in the books of account and will appear in the Trail Balance whereas opening stock will not appear in it . Thus
Adjustment Purchase = Net Purchase + Opening Stock - Closing Stock .
Adjustment Purchase are shown on the debit side of the Trading Account . It should be noted that Closing Stock is not shown on the credit side of the Trading Account because it already stands adjusted in purchase , i .e., deducted from the total amount of the opening stock and purchases. Closing Stock is shown on the assets side of the Balance Sheet under Current Assets . Adjustment Purchases and closing stock will be shown as follows in the Final Accounts :
In the beginning of the next year. Closing stock will become Opening Stock and will be brought into books of accounts by passing the entry as under ,
Trading A/c. .... Dr.
To Opening Stock A/c
Note :
Closing stock will appear on the assets side of the Balance Sheet in both cases :
(a) When it is shown in Trial Balance and
(b) When it is shown outside the Trail Balance . But it is shown in the Trading Account ( Cr. side ) when it's adjustment is shown outside the Trail Balance .
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