What is the type of principal for CLOSING STOCK. and why we
show closing stock two time that is once in trading account
and another time in assets. if closing stock is Real
account than what about showing in trading account as we
dont show real account type in trading account. thanks
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Answer Posted / praveen gnaneshwar
It is primarily to evaluate the correct profit ONLY from sales, without considering other Administrative or Indirect cost.
Take an Example:
You had an opening balance of stock worth Rs 100. You purchased some more for Rs.50. You sold stock worth 100 for 200 rupees. Thus you made a profit of 100 rupees while you still have stock worth 50 rupees with you.
Debit/Purchases: (Open Bal. 100 + Purchases 50 )- Credit/Sales (Sales 200 + Clsng. Stock 50) = 100 Profit
If you dont take closing stock into account, then your profits would fall to only 50 rupees which is not correct.
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