Important Items included in Trading Account are listed below:
Stock - The goods remaining unsold is
called stock. It is of two types:
- Opening Stock: In the beginning of
the year the businessman has some unsold goods of
the last year. It is called opening stock. It is shown on
the debit side of Trading A/c.
- Closing Stock: The goods remaining
unsold at the end of the year is called Closing Stock. It
i_ shown on the credit side of the Trading A/c. Opening
Stock is given in the Trial Balance and Closing Stock is
given below the Trial Balance because closing stock is valued
after the accounts have been closed.
Closing Stock is valued at cost price or
market price whichever is less. For example, the businessman
purchased goods for Rs. 2,000 but at present its market value
is Rs. 2,500. It will be valued at Rs. 2,000 and not at Rs.
2,500. Another goods costs Rs. 3,600 but now its present value
are Rs. 2,600. It will be valued at Rs. 2,600. This decision
is followed on the principle that a gain cannot be treated
a gain unless it is actually received but a loss is treated
as loss when it is clearly visible. Thus we can say expected
gain is no gain but expected loss is a loss.
Closing Stock should be valued very carefully
and correctly. A list of the unsold stock should be carefully
prepared and its price written against every item. This work
should be done by capable and experienced person and checked
by some reliable officer. It should be kept in mind that if
the Closing Stock were valued at a higher price the Gross
Profit of the business would be wrong and misleading.
- Goods remaining unsold at the end of the year are called
Closing Stock.
- If there are other branches of the business the closing
stock of all the branches should be included.
- If goods have been sent on Consignment the stock remaining
unsold with the consignee should also be included.
- If the businessman has not taken into consideration some
purchases or sales returns these should also be included
in the Closing Stock
- Stock of Raw Materials. If the businessman
is a manufacturer and he will be having some stock of raw
material at the end of year it should be included in the
Closing Stock.
- Stock of Finished Goods. The part
of the finished goods unsold should also be included in
the Closing Stock.
- Stock of Work- in-progress. The goods
which is not ready but is expected to be ready shortly is
called Work-in-progress and should also be included in the
Closing Stock.
- Stores. The goods required for converting
the raw material into finished goods should also be included
in the Closing Stock. e.g., machine oil, chemicals, coal,
gas, etc.
Purchases Account tells the quantity of total goods purchased
and the Purchases Returns A/c shows the goods returned out
of purchases. It is shown on the Trading A/c in the following
manner:
To Purchases
Less Purchases Returns
These are those expenses that are included
in the manufacture of goods or expenses incurred in importing
goods and carrying them to the godown. In other words we can
say those expenses that are incurred in bringing the goods
to saleable condition are called direct expenses. Direct expenses
include the following:
- Wages: It is shown on the debit side
of the Trading A/c and shows the wages paid in the production
of goods.
Note 1. If wages are paid for bringing a new machine or
for its installation, it is treated as part of the cost
of the machine and is shown in the Assets.
Note 2. If the expense is recorded as 'Wages and Salaries'
it would go to Trading A/c. If it is 'Salaries and Wages'
it would go to P & L A/c.
- Carriage Inward: Carriage paid will
be shown on the debit side of the Trading A/c. Carriage
outward is shown on the debit side of Profit and Loss A/c.
- Manufacturing Expenses: All those
expenses, which incurred in manufacture of goods, are shown
on the debit side of the Trading A/c. e.g., factory fuel
and oil, factory lighting, coal and gas, etc. If lighting
of the factory and office are given together then they are
apportioned.
- Carriage and Freight: Carriage and
freight paid for bringing the goods purchased is a direct
expense and debited to Trading A/c.
- Sales and Sales Returns: Sales are
shown on the credit side of the Trading Ale but to arrive
at Net Sales the Sales returns should be deducted.
Q. Explain briefly the items shown in the Trading Account. |
Accounts
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