Asked in Business Accounting and BookkeepingAccounts PayableFinancial Statements
Why is closing stock not written in the trial balance but always written below the trial balance?
March 03, 2014 5:37PM
The reason why closing stock is not taken into account in a trial balance is because a trial balance is a balance of all ledger account a given point in time.It records only transactions which have a two way effect for EG:Purchases where goods are bought against cash or credit and sales where goods are sold against cash or credit..But closing stock is not a transaction having a two way effect any given point in time.It is only an indication of the goods lying in the factory at the end of the year.It is therefore showed below the trial balance and not in the trial balance.However in order to derive at the exact gross profit the closing stock is taken into consideration in the trading account and also appears as an asset in the balancesheet.In some case the closing stock appears as an adjusted purchase account in the trial balance and in this case it does not appear in the trading account but appears only in the balance sheet.
The main reason is that we do not pass any entry for consumption. Hence we donot prepare any ledger account for it.