[Rajiv Gupta]

Dear Sir,

While finalizing the annual accounts we show the closing stock in our trading account while inventory is the part of current assets so we are also showing the inventory in our balance sheet.

But question is that inventory should come only in balance sheet not in trading account also.

Why we have to show the inventory simultaneously in trading account as well as in balance sheet.:confused:

[Unknown008]

Hi Rajiv Gupta! Welcome to AMHD! :)

You should have posted your question in a better section, see:

Accounting - Ask Me Help Desk

[Clough]

Hi, Rajiv Gupta!

Greetings and WELCOME to the site! I just moved your question that you had posted in Introductions to this forum topic area so that it will get the most exposure to those who are best able to answer it. Introductions is for people to introduce themselves and we try to not ask questions there.

It can be a little confusing when first learning how to use this site! Your question will get noticed much more in this forum topic area.

We would appreciate it if you would return to Introductions sometime to tell us a little about yourself though, if you would be willing to do that.

Thanks!

[rehmanvohra]

Dear Sir,

While finalizing the annual accounts we show the closing stock in our trading account while inventory is the part of current assets so we are also showing the inventory in our balance sheet.

But question is that inventory should come only in balance sheet not in trading account also.

Why we have to show the inventory simultaneously in trading account as well as in balance sheet.:confused:

I am sure you know about matching concept which states that the revenues earned should be matched with the expenses incurred to earn that revenue. Assume you purchase 100 units and sell only 60 units, You will record sales for 60 units but cost of sales for 100 units. This will not reflect correct profit, will it? You therefore need to adjust the cost of sales to that of 60 units.

Again, you say that the closing stock should appear only in the balance sheet as a current asset. What is the corresponding credit entry?

[shaheem]

Actually we do not report the closing stock as an inventory item in the Trading account.
If you maintain the inventory at periodic method, it is shown there to derive the cost of goods sold (which is an expense item) as shown below:

Opening Stock
Add: Purchases
--------------------------
= stock available for sale
--------------------------
less: closing stock
-------------------------------
= Cost of goods sold
=================

or

Opening stock is shown in the Dr. side of Trading account
Purchase is shown in the Dr. side of Trading account
Closing stock is shown in the Cr. Side of Trading account

The net result of these three entries is the cost of goods sold as shown in the above formula.