For my Students.
You may have noticed that the Closing Stock figure is usually placed outside the Trial Balance. You would then use the figure in computing Cost of Sales in the Profit and Loss (P&L) Account. The figure is then presented as part of Current Assets in the Balance Sheet.
Have you ever wonder where did the Closing Stock figure come from and how it enters the accounting system? Two questions on stock were asked for Jun 2006 ACCA Paper 1.1 Preparing Financial Statement.
Profit and Loss account is part of the double entry system.
Balance Sheet and Trial Balance are essentially just listing of account balances.
Closing stock balance is a factor of price and quantity.
- The quantity is tracked by the no. of deliveries in and out over the financial year and confirmed after a physical stock count after end of financial year.
- Price is determined after doing the FRS2’s lower-of-cost-and-NRV exercise.
To transfer the Opening Stock to P&L account,
DR P&L account
CR Stock account
To bring Closing Stock into the accounting system,
DR Stock account
CR P&L account
Not many lecturers can or bother to explain this nowadays.
Hope it helps. Cheers 🙂