Learn Accounting Entries For Closing Stock And Adjusted Purchase On Your Own:

Closing Stock is normally shown out of trial because it indicates unsold quantity of goods and is determined at the end of the accounting period. Normally, a list of unsold stock is estimated at cost price or market price whichever is lower. Normally, closing stock does appear in the Trial Balance and it is shown in the list of adjustments. When it is shown in the adjustments, two adjustment entries have to be passed before the preparation of Final Accounts.

  1. First, Closing Stock is shown on the Credit Side of Trading Account.
  2. Secondly, Closing Stock is shown on the Asset Side of Balance Sheet.

If the amount of the closing stock is already known and is recorded in the books, it is shown in the Trial Balance itself and it means that both the opening as well as closing stocks have been adjusted in the purchases. Therefore, only the adjusted purchases and closing stock will appear in the Trial Balance and not the opening stock. Adjusted purchases is calculated by adding the opening stock to net purchases (ie., Cash Purchases + Credit Purchases - Purchases Returns) and subtracting the Closing Stock there from.

In other words,

Adjusted Purchases = Net Purchases + Opening Stock - Closing stock.

Here it is to be noted that in such situation, adjusted purchases is to be shown on the debit side of the Trading Account but the closing stock is not shown on the credit side of the Trading Account because it is already adjusted in purchases, ie., it is deducted from the total amount of the Opening Stock and Purchases. The closing stock will be shown only on the assets side of the Balance Sheet under Current Assets.