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Why Closing Stock is Not Shown in Trial Balance?

Closing Stock Not Shown in Trial Balance

The reason why closing stock is not shown in trial balance takes into consideration whether or not closing stock has been adjusted with purchases or not. It is important to understand and endure so that a correct trial balance is prepared and the ledger balances are accurately checked.

It is usually shown as an additional information or an adjustment outside the trial balance.

 

Reason

Closing stock is the leftover balance out of goods which were purchased during an accounting period. Total purchases are already included in the trial balance, Hence closing stock should not be included in the trial balance again. If it is included, the effect will be doubled.

Suppose total purchases during an accounting period inside a Trial Balance are: 10,000 

Closing Stock: 2,000 (This is included in purchases already)

If both of these figures are shown in trial balance then there will be a mismatch of 2,000 because the effect has now been doubled in the trial balance. 

Also, No separate account is opened for closing stock inside the general ledger. Hence, closing stock is not to be shown in the trial balance.

Related Topic – Top Accounting Interview Questions

Exception

The only instance when closing stock will appear in trial balance is when the closing stock is adjusted against purchases with the below-mentioned journal entry.

This nullifies the double effect as closing stock & purchases are now adjusted and are treated separately.

Journal Entry When Closing Stock is Adjusted Against Purchases

>Read How to Calculate COGS (Cost of Goods Sold)?



 

Ahuja Sahil

Ahuja Sahil

He is the Founder of AccountingCapital.com with a single aim i.e. to "Simplify Accounting and Finance". Sahil holds a Bachelors in Commerce and a Masters in Finance. He loves whiteboard explanations, helping others, and travelling. Sahil's corporate experience extends over 6 yrs with eminent names such as Ameriprise Financial & AXA Insurance.

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