Adjustment: Closing Stock Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

now closing stock what is closing stock
closing stock mind you is not actually a
nature account what is the closing stock
closing stock is goods purchased and not
sold goods purchased but not salt at the
end of the year suppose like in our
example all in the previous example
5,000 units were purchased and we sell
only 4,000 units there is a stock
remaining balance of 1000 units now if
our purchases we cannot compare 5,000
units purchased with 4,000 wounded soul
if 4,000 units are sold the cost of this
4,000 units sold is the purchase cost of
only 4000 units and the remaining 1000
units is closing stock and that cannot
be included as a part of the cost but
this is like this this this 1000 units
cost is included in the amount of
purchased so what we do is at the
year-end we actually pass an accounting
entry for the amount of closing stock
what is the entry that we pass it is
closing stock account debit closing
stock account debit to trading account
is what you have seen to trading account
what we do with this this account an
account called closing stock is created
which is taken to the asset side of the
batch which is taken to the asset side
of the batch so what is our accounting
entry closing stock account debit to
trading account alternatively
alternatively if our accountant once to
prepare a closing stock account wants to
create a closing stock account before
the trading account is prepared he may
say closing stock account debit to
instead of trading he may say to
purchase a cow why does he credit the
purchase occur because these Goods could
not be sold they should not be included
as
included in purchases when we compare it
with the same units sold 4000 therefore
units purchased should reflect the cost
of only 4000 so either we credit
purchase account or we credit trading
account the net effect is exactly the
same native net effect would be the same
so if the accountant passes an entry
saying closing stock account debit to
purchases closing stock account debit to
purchases it would mean purchases is at
a lower figure and in that case this
closing stock need not need not appear
in their trading account the entry has
already been passed by the accountant in
a situation where the accountant says
closing stock account debit not to
trading but closing stock account debit
to purchases the closing stock would
appear in the trial balance the closing
stock would appear in the trial balance
if closing stock appears in the trial
balance
it is only an asset it is an asset and
would be taken to the asset side of the
balance sheet but if it is outside the
trial balance if there is a mention that
purchases are 5,000 units purchase
account reflects the cost of 5,000 units
and at the end of it outside the trial
balance there is information given that
I still have a closing stock of 1,000
units then the entry that could be
passed here in this case would be
closing stock to trading account closing
stock to trading account when we do this
we credit the trading account and that
is how we create the closing stock
account this closing stock would now be
taken to the asset side of the balance
sheet so the closing stock may be
outside the trial balance which is
normally the case or if it is in the
trial balance if it is included if it is
a part of the trial balance then it will
go only to the balance sheet it means
our accountant has passed an entry
saying closed
stock account debit to purchases or
closing stock account debit no cost of
goods sold no cost of goods sold so
closing stock if it's outside the trial
balance we pass an accounting entry
closing stock account debit to trading
account if it is outside the trial
balance closing stock appears on the
credit side of the trading account as
well as the asset side of the balance
sheet because the accountant is now now
passing an entry saying closing stock
account debit to trading account but if
it is in the trial balance it means an
accountant has already made the
adjustment he has created he has passed
an increasing closing stock account
debit and he has either credited the
purchase account brought down the cost
of purchases or credited maybe a account
called cost of goods in that case the
closing stock which appears in the trial
balance will only be taken to will only
be taken to the batch goods in transit
goods in transit actually when we
physically count how do we ascertain the
closing stock once units are sold units
have been purchased some of the units
are sort end of the year we count the
balance of units with us and we have
concluded that there are 1000 units
suppose when we count we see that there
are only 800 units and 200 units are
actually in transit we have purchased we
have recorded it as purchase but the
goods have not yet arrived so they have
been included as purchases but for some
reason they are still in transit not yet
on the promises if they were on the
premises they would have been a part of
the closing stock in such a case also we
would pass an entry saying goods in
transit account since it is already
included in the purchases goods in
transit account debit to trading
accounts or we could also take it - but
chases account but if goods in transit
again just like the closing store if it
is shown outside the file balance you
would have to pass this entry goods
entrance
compared to trading up however if it is
within the trial balance it would mean
that the entry is already past and such
a goods in transit would be taken only
to the asset side of the balance sheet