Register now or log in to join your professional community.
Let us read to understand the reason why closing stock is not shown in trial balance. The relation between closing stock and the trial balance is important to understand and endure, so that a correct trial balance is prepared and the ledger balances are accurately checked.
It is usually shown as an additional information or an adjustment outside the trial balance.
Reason
Closing stock is the leftover balance out of goods which were purchased during an accounting period but are unsold till now. Total purchases are already included in the trial balance, Hence closing stock should not be included in the trial balance again. If it is included, the effect will be doubled.
Suppose total purchases during an accounting period inside a Trial Balance are – 10,000
Closing Stock – 2,000 (This is included in purchases already)
If both of these figures are shown in trial balance then there will be a mismatch of 2,000 because the effect has now been doubled in the trial balance. Also, No separate account is opened for closing stock inside the general ledger. Hence, closing stock is not to be shown in the trial balance.
The only instance when closing stock will appear in trial balance is when closing stock is adjusted against purchases with the below mentioned journal entry. This nullifies the double effect as closing stock & purchases are now adjusted and are treated separately.
The reason why closing stock is not taken into account in a trial balance is because a trial balance is a balance of all ledger account a given point in time. It records only transactions which have a two way effect for example Purchases where goods are bought against cash or credit and sales where goods are sold against cash or credit..But closing stock is not a transaction having a two way effect any given point in time. It is only an indication of the goods lying in the factory at the end of the year. It is therefore showed below the trial balance and not in the trial balance. However in order to derive at the exact gross profit the closing stock is taken into consideration in the trading account and also appears as an asset in the balance sheet. In some case the closing stock appears as an adjusted purchase account in the trial balance and in this case it does not appear in the trading account but appears only in the balance sheet. The main reason is that we do not pass any entry for consumption. Hence we don’t prepare any ledger account for it.
Closing Stock don't including in TB BCZ its already laying in TB that is Opening Stock +Purchase - Sales is closing stock
The another thing is Current year "Profit or Loss" don't mention in the TB . it already laying TB
closing stock can be shown in trial if we pass a journal entry. i.e. Closing Stock Dr. To purchases. its mostly given out of trial because it is deteremined at the time of finalisation of accounts and its directly entered in p/l account. but if it is given in trial balance, then it will not be entered in p/l account. It will be shown only in the balance sheet.
can anybody answer me where does consumption value goes in trial balance?
Total purchases are included in the trial balance. if entered again it will be double effecr. we should not .
