As per IAS 2, the Closing stock is valued at cost or market value whichever is lower. The value of closing stock is shown on the credit side of a Trading Account and the asset side of a Balance Sheet. The journal entry of the closing stock is posted at the end of an accounting year. The value of the closing stock may be shown inside or outside a trial balance.
Most often this stock is excluded in Trial Balance. This is the most common practice where the closing stock is not shown in the trial balance. The Journal Entry for the closing stock is as follows:. This is a very rare practice where closing stock adjusted against purchases. Below is the journal entry for closing stock when it is reduced from purchases. Closing Stock is the remaining balance of total purchased goods during an accounting period.
As total purchase is already included in the trial balance, closing stock is avoided considering the fact, the effect will be doubled. Hence, the closing stock should not be included in the Trial Balance again. Reason Closing stock is the leftover balance out of goods which were purchased during an accounting period. Suppose total purchases during an accounting period inside a Trial Balance are: 10, Closing Stock: 2, This is included in purchases already If both of these figures are shown in trial balance then there will be a mismatch of 2, because the effect has now been doubled in the trial balance.
Related Topic — Top Accounting Interview Questions Exception The only instance when closing stock will appear in trial balance is when the closing stock is adjusted against purchases with the below-mentioned journal entry.
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