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Aadil
AadilCurious
In: 1. Financial Accounting > Accounting Terms & Basics

What is the meaning of opening stock?

What is the meaning of opening stock?
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    1. GautamSaxena .
      2022-07-13T22:12:44+00:00Added an answer on July 13, 2022 at 10:12 pm
      This answer was edited.

      Meaning of Opening Stock

      Opening stock is the inventory or stock of goods that are available at the beginning of the new accounting year carried down from the previous year’s closing stock which is recorded in the books of accounts.

      • In simple words, Opening stock is the goods/quantity/products that are held by a business at the beginning of a new accounting period and it is the closing stock of the preceding year carried down.
      • Similarly, the closing stock is the number of unsold goods that remain with the business at the end of an accounting year and is further carried down to the next year as Opening Stock.

       

      Formula

      There are 3 main formulas used for Opening Stock’s calculation. They are-

      • For manufacturing companies

      Opening Stock = Raw Material Cost + Work in Progress + Finished Goods Cost

      • When only Sales, GP, COGS, and Closing Stock are given

      Opening Stock = Sales – Gross Profit – Cost of Goods Sold + Closing Stock

      • You can use this one when only limited information is provided

      Opening Stock = COGS + Closing Inventory – Purchases

       

      Types of Opening Stock

      There are three types of Opening Stock or we may also say that Opening  Stock consists of these 3 elements. They are-

      • Raw Materials- These are the unprocessed goods held by a business that is yet to be converted into finished goods.
      • Work in Progress- These include the goods that are in process but not converted into finished goods.
      • Finished Goods- These are the goods/products that have completed the manufacturing process but have not yet been sold.

      Opening Stock in Final Accounts

      Opening stock is a part of the Trading Account while preparing the Final Accounts. And this is how it is posted in the Trading A/c.

      Trading A/c (for the year ending…)

       

      Example of Opening Stock

      Example

      IKEA, the biggest Furniture manufacturer collected this data on April 1, 2021,

      Timber – $300,000

      Wood – $30,000

      Nails – $15,000

      Pre-cut Wood – $120,000

      Assembled Furniture – $400,000

      Now, adding them (as said earlier, Opening stock is a combination of these three.)

      Opening Stock (Raw Material + Work in Progress + Finished Goods) = $865,000

      Therefore, that’s how one can calculate Opening Stock.

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