why opening stock posted in expences side in trading account
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A typing mistake was there in my first answer. Corrected answer is as follows:
Sales (that is credited in trading account) include the value of goods sold during the whole accounting year.
However, Purchases (that is debited in trading account) include 'only' the value of goods 'purchased in that accounting year'.
If we had an opening stock, we sell that stock also along with the purchases of the accounting year.
So as mentioned above, Sales (that is credited in trading account) include the value of goods sold that is purchased during the year + the opening stock we had.
So if we debit the purchases only we can't take the actual total expenses to account that is leading to the sales because we have sold the opening stock too.
So the actual total expenses behind the sales include purchases + opening stock. OR the actual cost of goods sold = purchases + opening stock (in this case).
Example:
Opening stock = 30000
Sales = 400000
Purchases = 170000
So sales of 400000 include not only purchases of 170000 but also the opening stock of 30000. Therefore, in trading account, sales is credited as it is the total revenue of the year. Purchases is debited as it an expense of goods sold in that year. In addition to this, opening stock is also debited for the reason stated in the above content.
This is done for finding the actual gross profit. If opening stock is not debited, gross profit will be overstated.
Here the gross profit without debiting opening stock is 400000 - (170000) = 230000
Actual gross profit after debiting opening stock is 400000 - (170000 + 30000) = 200000
Thus actual gross profit is derived thereby.
| Is This Answer Correct ? | 28 Yes | 0 No |
Answer / philip denz
Sales (that is credited in trading account) include the value of goods sold during the whole accounting year.
However, Purchases (that is debited in trading account) include 'only' the value of goods 'purchased in that accounting year'.
If we had an opening stock, we sell that stock also along with the purchases of the accounting year.
So as mentioned above, Sales (that is credited in trading account) include the value of goods sold that is purchased during the year + the opening stock we had.
So if we debit the purchases only we can't take the actual total expenses to account that is leading to the sales because we have sold the opening stock too.
So the actual total expenses behind the sales include purchases + closing stock. OR the actual cost of goods sold = purchases + opening stock (in this case).
Example:
Opening stock = 30000
Sales = 400000
Purchases = 170000
So sales of 400000 include not only purchases of 170000 but also the opening stock of 30000. Therefore, in trading account, sales is credited as it is the total revenue of the year. Purchases is debited as it an expense of goods sold in that year. In addition to this, opening stock is also debited for the reason stated in the above content.
This is done for finding the actual gross profit. If opening stock is not debited, gross profit will be overstated.
Here the gross profit without debiting opening stock is 400000 - (170000) = 230000
Actual gross profit after debiting opening stock is 400000 - (170000 + 30000) = 200000
Thus actual gross profit is derived thereby.
| Is This Answer Correct ? | 5 Yes | 0 No |
Answer / neha
As it is the closing balance of previous year in the credit
side hence for its settlement it posted in debit side of
trading account.
| Is This Answer Correct ? | 17 Yes | 14 No |
Answer / janvi
Creditors are liabilities of a b's so it is credited in journal like this opening balance is previous year closing balance so it is our liability that's why it is Dr. to trading account
| Is This Answer Correct ? | 2 Yes | 0 No |
Answer / anuj kumar
to know the consumed amount ... consumed = purchase + opening stock - closing stock
| Is This Answer Correct ? | 0 Yes | 0 No |
Answer / v s kumar
AS closing stock was in credit side in the previous year it
has to be postd on Dr. side of the of trading account
V S kumar
| Is This Answer Correct ? | 3 Yes | 6 No |
Answer / mandar
like debtors a/c always has debit balance, and credit a/c
always has credit balance....for their balance to be
existed, inventory a/c also always has credit balance(as
inventory can't go in negative). thus, to tally both sides
of the a/c, cl. stock. is written at credit side...and thus
opening balance is then written at debit side, as it is
carried forward.
| Is This Answer Correct ? | 5 Yes | 11 No |
Answer / sandeep
To get actual GP we have deduct opening stock and and
purchases for the sum of sales and cl stock.
| Is This Answer Correct ? | 0 Yes | 6 No |
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