Question 11 of 35beginner💡 UnderstandShort Answer3 marks

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

Correct Answer

Meaning of Closing Stock: Closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period.

Treatment in Final Accounts: The adjustment with regard to closing stock is done in two ways: (i) by crediting it to the Trading and Profit and Loss Account, and (ii) by showing it on the assets side of the Balance Sheet under Current Assets.

Adjustment Entry: Closing Stock A/c Dr. To Trading A/c

The closing stock of the year becomes the opening stock of the next year and is reflected in the trial balance of the next year.

Exercise: Short Answers | Q: 2 | (Page 51)
For More Understanding

Explanation

This answer covers the definition and dual treatment of closing stock as per NCERT guidelines. The textbook clearly states that closing stock is the cost of unsold goods at period end. The treatment involves two parts: showing it on the credit side of Trading A/c and on the assets side of Balance Sheet. The journal entry format is also provided as per the textbook.

Solution Steps

  1. Step 1: Define closing stock as the cost of unsold goods at the end of accounting period

  2. Step 2: Explain the dual treatment - credit to Trading A/c and show on assets side of Balance Sheet

  3. Step 3: Provide the adjustment entry: Closing Stock A/c Dr. to Trading A/c

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