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Closing stock in trial balance 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 e.g. 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 do not prepare any ledger account for it.
In the double entry system, debit side of the clossing stock is an asser which goes to Balance sheet, credit side is a revenue item which goes to the P and L account in Trading or Manufacturing Account as the case may be. As both are equal amount normally not shown in the Trial balance which is not an account.Showing in Trial balance both as debit and credit entries also is not incorrect can be shown .Accordingly, Trial balance ,based on which Pand L account and Balance sheet can be drawn.
Closing Stock is not appearing in Trial Balance due to the below mentioned reasons:
1) Trial Balance is extracted from the balances appearing in respective accounts in ledger. All these balances are based on Double entry principal of accounting i.e. transactions having two side effect i.e Debit and Credit.
2) Closing Stock is nothing but Items lying in go-down at the end of year which is valued and to be brought in to books of accounts - Which does not have any two side effect. The stock includes : Finished Products, Raw materials and Work in progress etc.
As stated above in point no:2, Closing Stock will be brought in to books of accounts by showing in Trading account and Under current assets in the balance sheet. This can also be shown as deduction from the total of (opening Stock plus purchases ) - Closing Stock for calculation of material consumed or cost of goods sold. In such a case it will not showing in trading but shown only in Balance Sheet.
