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prashant06
prashant06
In: 1. Financial Accounting > Journal Entries

What is the Journal Entry for Opening Stock?

What is the Journal Entry for Opening Stock?
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    1 Answer

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    1. Karan B.com and Pursuing ACCA
      2021-08-04T17:55:27+00:00Added an answer on August 4, 2021 at 5:55 pm
      This answer was edited.

      The journal entry for the opening stock will be:

      Particulars Amt Amt
      Trading A/c INR
                   To Opening Stock A/c INR
      (Being opening stock transferred to Trading A/c)

      Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. Opening stock may include stock of raw material, semi-finished goods, and finished goods. It is a part of the cost of sales.

      Closing stock is the value of unsold inventory left with the company at the end of the year. The previous year’s closing stock is the current year’s opening stock.

      Trading Account is a nominal account. According to the golden rules of accounting, the nominal account is the account where “Debit” all expenses and losses, and “Credit” all income and gains.

      In the above journal entry, the opening stock account is credited because it is the balance that is carried forward from the previous year and carried forward with the aim of selling it and gaining profit from it. The trading account here is debited as opening stock is carried forward to the next year from the trading account only.

      According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenues, and decreases assets and expenses.

      Here, Trading A/c is debited because an expense is incurred while bringing stock into the business. Opening Stock A/c is credited because indirectly it is creating a source of income for the business.

      The formula for calculating opening stock is as follows:

      Opening Stock = Cost of Goods Sold + Closing Stock – Purchases

      For example, AB Ltd. started a new accounting period for dairy products and introduced opening stock worth Rs.1,00,000 in the business.

      Here, the journal entry will be,

      Particulars Amt Amt
      Trading A/c 1,00,000
                   To Opening Stock A/c 1,00,000
      (Being opening stock transferred to Trading A/c)
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