Opening Stock Calculation

To calculate the opening stock, we need to consider various factors and information related to the business. The opening stock refers to the value of inventory or stock that a business has at the beginning of an accounting period.

Factors to Consider

1. Closing Stock of the Previous Period: The closing stock of the previous accounting period becomes the opening stock of the current period. It represents the value of inventory that was unsold or not utilized at the end of the previous period.

2. Purchases: Purchases made during the accounting period need to be considered. These are the goods acquired by the business for resale or for use in production. The value of purchases during the period needs to be determined.

3. Sales: The sales made during the period also need to be taken into account. The value of goods sold during the period needs to be determined.

4. Returns: Any returns made by customers or suppliers need to be considered. If there were any goods returned by customers, they need to be subtracted from the sales figure. Similarly, if there were any goods returned to suppliers, they need to be subtracted from the purchases figure.

5. Gross Profit Margin: The gross profit margin is the percentage of profit earned on sales after deducting the cost of goods sold. It can be used to estimate the cost of goods sold during the period. By applying the gross profit margin to the sales figure, we can calculate the estimated cost of goods sold.

Calculation Process

1. Calculate the estimated cost of goods sold by multiplying the sales figure by the gross profit margin.

2. Subtract the estimated cost of goods sold from the purchases figure to determine the cost of goods available for sale.

3. Subtract the cost of goods available for sale from the closing stock of the previous period to obtain the opening stock for the current period.

Example:

Let's consider an example to understand the calculation:

Closing stock of the previous period: $10,000
Purchases during the period: $30,000
Sales during the period: $40,000
Returns from customers: $2,000
Returns to suppliers: $1,000
Gross profit margin: 30%

1. Calculate the estimated cost of goods sold:
Estimated cost of goods sold = Sales * Gross profit margin
= $40,000 * 30% = $12,000

2. Determine the cost of goods available for sale:
Cost of goods available for sale = Purchases - Returns from suppliers
= $30,000 - $1,000 = $29,000

3. Calculate the opening stock:
Opening stock = Closing stock of the previous period + Cost of goods available for sale - Estimated cost of goods sold
= $10,000 + $29,000 - $12,000 = $27,000

Therefore, the opening stock for the current period is $27,000.

Summary

The opening stock is calculated by considering the closing stock of the previous period, purchases, sales, returns, and the gross profit margin. By following the calculation process, we can determine the value of the opening stock for a given accounting period.

Abhishek started a business with a capital of ₹200000. At the end of the year his total assets were 500000 and external liabilities were for ₹225000. He further information you that during the year he withdrew ₹25000 for household use. During the year he sold his personal investment of ₹25000 at 20% profit and brought that money into the business as additional capital.                   You are required to prepare a statement of profit or loss under accounts from Incomplete Records method.