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(27)-ACCOUNTING FOR STOCKS

Monday, November 16, 2009

Accounting for Stocks

To calculate gross profit it is necessary to work out the cost of goods sold, and in order to calculate the cost of goods sold it is necessary to have value for the opening stock and closing stock.
  • Normally purchases are introduced to the trading account.
    Trading account - Debit
    Purchases account - Credit
  • When a stock take is made the business will have a value for its closing stock and the double entry is,
    Stock account - Debit
    Trading account - Credit
  • Closing stock at the end of one period becomes opening stock at the start of the next period. The stock account remains uncharged until the end of the next period when the value of opening stock is taken to the trading account,
    Trading account - Debit
    Stock account - Credit

This stock account is only ever used at the end of an accounting period, when the business counts up and values the stock in hand in a stock take. The debit balance of on stock account represents an asset, which will be shown as part of current assets in the balance sheet.

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