Matching Concept:

The matching concept is an accounting principle that requires the recognition of expenses in the same period as the related revenues. It ensures that all expenses incurred in generating revenue are properly matched with the revenue earned during the same accounting period. This concept helps in determining the profitability of a business by accurately measuring the net income or loss for a specific period.

Explanation:

Closing stock is the value of the unsold goods at the end of an accounting period. According to the matching concept, the cost of goods sold (COGS) should be matched with the revenue generated from the sale of those goods. In other words, the expense of purchasing or manufacturing the goods should be recognized in the same period as the revenue from selling those goods.

To apply the matching concept, the closing stock is credited to the trading account. This means that the cost of goods that are still in stock is deducted from the purchases or manufacturing cost of goods sold during the accounting period. By crediting the closing stock, the trading account reflects a more accurate calculation of the COGS and gross profit.

The trading account is an intermediate account that is prepared to calculate the gross profit or loss of a business. It includes the opening stock, purchases or manufacturing cost, direct expenses, closing stock, and sales. The closing stock is credited in the trading account to adjust the cost of goods sold and calculate the accurate gross profit.

Example:

Let's say a business has opening stock worth $10,000, purchases or manufacturing cost of $50,000, direct expenses of $5,000, and closing stock worth $15,000. The sales for the accounting period are $80,000.

To calculate the COGS, we need to deduct the closing stock from the purchases or manufacturing cost:

COGS = Opening Stock + Purchases or Manufacturing Cost + Direct Expenses - Closing Stock
= $10,000 + $50,000 + $5,000 - $15,000
= $50,000

By crediting the closing stock in the trading account, the COGS is adjusted, and the gross profit can be calculated accurately. This helps in determining the true financial performance of the business.

In conclusion, the accounting concept that requires the practice of crediting closing stock in the trading account is the matching concept. This concept ensures that the cost of goods sold is properly matched with the revenue earned in the same accounting period, resulting in an accurate calculation of the gross profit.