Question

What is meant by closing stock? Show its treatment in final accounts?

Answer 1

The closing stock is referred to as the goods which remains unsold at the end of an accounting year.

It is evaluated at the price of its cost or its realizable value whichever is lower.

For example: if cost of goods unsold is ₹ 5,000 and net realizable value is ₹ 45,000 then the closing stock is valued at ₹ 4,500.

The treatment of the closing stock is done in the final accounts in the following manner:

1. In the case when the closing stock appears in the Trail balance then it shown ass asset in the Balance Sheet.

2. In the case when the closing stock appears as an adjustment then it is shown on the credit side of the Trading account and at the side of the asset in the balance sheet.