Interested to Buy Any Domain ? << Click Here >> for more details...
why opening stock posted in expences side in trading account
- 9 Answers
- 24753 Views
- I also Faced
- E-Mail Answers
Answer Posted / filipdenx
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 ? | 29 Yes | 0 No |
Post New Answer View All Answers
Income Tax Department sends cheque for INR 2 Crore as Refund after completion of Assessment for A.Y.2011 - 2012 to a Company. As per IT Return filed for this year I.T. due to Government was INR 60 Lac but was assessed at INR 70 Lac. TDS due to Company was INR 3 Crore which was admitted as INR 2.7 Crore by Government. Government also adjusts Tax dues for A.Y. 2009 - 2010 of INR 40 Lac which was disputed earlier by the Company and Appeal was lying with the CIT. Government pays Interest to the Company amounting to INR 40 Lac. Provision for Income Tax made by the Company in its accounts for F.Y. 2010 - 2011 (A.Y. 2011 - 2012) was INR 50 Lac. What would be the Journal Entry at the time of receipt of Refund of INR 2 Crore from the Government in A.Y. 2014 - 2015 in the books of the Company?
what is rate of service tax and form no. of service tax ? wt rules of service tax a particuler once .?
analyses of Cost control
Is it possible to list only a portion of Equity Shares leaving the balance as unlisted?
Is form 38 mandatory to issue c form in up. thru online mode
hat is the meaning of the capital ique,and hat is capital,and ahat is ique
what is the abrevation for JJ in form jj
Information regarding shop & establishment registration of propiertor ship & require document for this
when will be appsc exams will held pls give me the dates
sir i want aao lic exam model question paper
Treatment of Government grant and its utilization in P
what is mean by tax holiday?
In the case of Internal Reconstruction of company Accrued Int. On debenture / Outstanding int. On debenture transfer or not in capital reduction a/c . Explain
How to analyse the day to day sensex Points or Forex Values?
How often is the stock market ticker updated? 15sec? 30sec?
