Treatment of closing stock

alpha · 08-13-2010, 03:26 AM

Hi,
I have a query.
Why closing stock is considered in both Profit & Loss A/C and balance sheet.
Regards.
Bipin

basit_namdar · 08-14-2010, 06:58 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by alpha
 Hi,
I have a query.
Why closing stock is considered in both Profit & Loss A/C and balance sheet.
Regards.
Bipin
<hr height="1" noshade id="quote"></blockquote id="quote">

Yaara basically firstly u need to understand that Stock is our Current asset therefore it is a part of balance sheet. Secondly as far as PnL is concerned the formula that we use to calculate the cost of goods sold is such that if we don't subtract closing stock from the total of purchases and opening inventory than it will not be cost of goods sold it will be cost of goods AVAILABLE FOR SALE. therefore we need to subtract closing stock from total of purchases and opening inventory to make sure that the COGS doesn't incorporate the cost of goods which are still held and have not been sold.

imdad1 · 08-14-2010, 04:06 PM

listen keep it simple..

-everything which we hold on year end comes in Statement of Financial position( now dont use balance sheet word as it has been replaced by revised IAS-1) so thats why the stock which an entity holds at year end for instance June 30.20xx will be shown as current asset in statement of financial position

-everything which we expensed/used during the year comes in Profit and loss account thus the inventory we consumed is recorded as expense in p/l
and the method of computation is as follows

opening stock(value)=10,000
purchases(current year)=20,000

total availiable stock=30,000
lessStock value closing sotck(W.A basis)20,000
value of stock sold(bal)=10,000

THx and regards
IASB-ACA
<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by alpha
 Hi,
I have a query.
Why closing stock is considered in both Profit & Loss A/C and balance sheet.
Regards.
Bipin
<hr height="1" noshade id="quote"></blockquote id="quote">

alpha · 08-17-2010, 03:43 AM

Hi Imdad1/Basit_namdar,
Thanks a lot for your valuable reply.
Regards
alpha