AccountingQA Latest Questions

Simerpreet
SimerpreetHelpful
In: >

  2. Mitika

    Straight Line Depreciation Journal Entry Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets. The salvage value or Residual value of an asset means the estimated valueRead more

    Straight Line Depreciation Journal Entry

    Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets.

    The salvage value or Residual value of an asset means the estimated value of the asset at the end of its useful life.

    The depreciation can also be charged with another method like Written Down Value (WDV) Method.

     

    Formula

    Depreciation per annum = ( Cost of asset – Salvage Value) / Useful Life

     

    The journal entry for the depreciation is:

    JOURNAL ENTRIES

    		  
    Depreciation on Asset A/C                               DR.
                                To Asset A/C
    (Being depreciation charged on asset)

     

    Now let us understand this with an example, suppose XYZ Ltd. has an asset of value 90,000 with a useful life of 3 years. The company uses the straight-line method of depreciation to depreciate the asset in its book.

     

    So, the depreciation per annum would be calculated as:-

    = 90,000/3

    = 30,000

     

    In Year 1, the depreciation will be charged as 30,000 for this year. It will be debited to the  depreciation account and credited to the asset account. Thus, the value of the asset at the end of year 1 will be 60,000 (90,000-30,000).

    JOURNAL ENTRIES

    		  
      DR CR
    Depreciation on Asset A/C                                                   30,000
              To Asset A/C                                                                                                              30,000
    (being depreciation charged on asset)

     

    In Year 2, the depreciation will be charged as  30,000. The entry would be the same as the previous year. The value of the asset at the end of year 2 will be 30,000 (60,000-30,000).

    JOURNAL ENTRIES  
      DR CR
    Depreciation on Asset A/C                                                   30,000
              To Asset A/C                                                                                                                  30,000
    (being depreciation charged on asset)

     

    At last in Year 3, the depreciation will be charged 30,000. The entry would be the same. The value of the asset at the end of year 3 will be Nil (30,000- 30,000).

    JOURNAL ENTRIES

    		  
      DR

    CR
    Depreciation on Asset A/C                                                30,000
              To Asset A/C                                                                                                            30,000
    (being depreciation charged on asset)

     

    The depreciation will be charged to the profit and loss account for the year as it is an expense for the company.

     

    The entries will be posted into depreciation account as mentioned:

    DEPRECIATION A/C  
    Date Particulars Amount Date Particulars Amount
    Year 1 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               
    Year 2 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               
    Year 3 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               

     

    See less
    • 0
Ishika Pandey
Ishika PandeyCurious
In: >

  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Yes, accounting is necessary even for not-for-profit organizations. NPOs or not-for-profit organizations are those that are created for the welfare of the society. They intend to advance some social cause. For example charities, orphanages etc Accounting for NPOs becomes necessary as the trustees ofRead more

    Yes, accounting is necessary even for not-for-profit organizations.

    NPOs or not-for-profit organizations are those that are created for the welfare of the society. They intend to advance some social cause. For example charities, orphanages etc

    Accounting for NPOs becomes necessary as the trustees of these institutions are liable to their members, the donors and the government. They discharge this function with documenting activities of the institution.

     

    What is a not-for-profit organization?

    A not-for-profit organization is an entity that undertakes charitable activities. These institutions do not have earning profit as their primary motive. Their focus is on extending social welfare.

    Every not-for-profit organization usually has a group of trustees that are responsible for handling all its operations. These trustees are accountable to the members of the NPO.

    A not-for-profit organization usually relies on donations and grants as its primary source of revenue. They do not charge the stakeholders to whom they extend their services or goods.

     

    What does accounting for Not-for-profit organizations entail

    The professionals undertaking accounting of not-for-profit organizations must have a significant knowledge of statutory provisions and accounting principles. Here is a brief overview of what accounting for a not-for-profit organizations entails

    • Ensuring that the institution fulfills all the legal compliances necessary for it to continue functioning as a NPO.
    • Documenting all the activities of the institution and ensuring that the NPO has the necessary permits to carry out those activities.
    • Accounting for all the revenue receipts and expenses of the institution. The professional must keep in mind that the interests of the members and other stakeholders are not being subjected to any prejudice.
    • In India, every NPO has to compulsorily prepare a receipt and payment account, income and expenditure account and a balance sheet. These have to be submitted to the Registrar of Societies before the due dates.

    • Every professional undertaking the accounting of a not-for-profit organization must keep in mind that a single non-compliance or partial-compliance can result in the NPO losing out on its tax-exempt status.
    • In the past there have been many instances when NPOs have been used for the purpose of money laundering or tax evasion.
    • This has resulted in the government making the compliances for these institutions more stringent. The institutions are now required to be more transparent regarding their operations.

    We can conclude that accounting is an indispensable requirements for not-for-profit organizations to be able to continue their operations and claim the statutory benefits that the government has extended to them.

     

     

    See less
    • 0
Anushka Lalwani
Anushka Lalwani
In: >

  2. Saurav

    Brands can be considered as an Intangible asset as they are a long-term investment done by the company and it gives benefit to an entity in future periods. Like any other intangible asset, brands require long-term investment and will pay over time. Like any other asset, these brands can be bought anRead more

    Brands can be considered as an Intangible asset as they are a long-term investment done by the company and it gives benefit to an entity in future periods.

    Like any other intangible asset, brands require long-term investment and will pay over time. Like any other asset, these brands can be bought and sold. Brands are best used when they serve the vision and mission of the company.

    So, we can definitely consider an organization brand as an intangible as it is expected to increase sales volume in the future period.

    Further, we can understand both terms to get a deep understanding-

     

    BRAND

    Brand means a product, or service which has a unique identification and can be distinct from other products in the market. Branding is a process by which expenditure is incurred by an entity to create awareness towards the product in the customer’s eyes.

    For example- Maggie, Coca-Cola, BMW

    Brands can be created through these elements-

    • Design
    • Packaging
    • Advertisement

     

    INTANGIBLE ASSETS

    Intangible asset are assets that can’t be seen or touched but the benefit of it occur in future periods for the entity. Even though intangible assets have no physical form but their benefits will accrue in future years. Businesses commonly hold intangible assets. Intangible assets can be further bifurcated in

    Definite– Intangible assets that stay and give benefit for a limited or specific period of time covered under this

    For example- An agreement is entered with an entity to patent a product for 5 years so this will stay for a definite period only

    Indefinite– Intangible assets that stay and  give benefit for an unlimited  period of time covered under this

    For example- A brand which is made by an entity will stay for an indefinite period

    Intangible assets can be in various forms these are the following –

    Trademark– A trademark is a sign, design, and expression that distinguish the company’s product or services from other company. Trademark is considered an Intellectual Property Right.

    Goodwill– Goodwill refers to the value of the company that the company gets from its brand, customer base, and brand Reputation associated with its intellectual property.

    Patents– A patent refers to a right reserved for a product exclusively by a person or entity. Under this the right of such making of the product gets reserved by the company and other person or entity can’t make this product.

    Copyright– Copyright refers to an intellectual property right that protects the work of the original owner from being copied by some other person.

    Brand– Brand means a product, or service that has a unique identification and can be distinct from other products in market

    So, we can definitely consider that brand is a subpart of an intangible asset and can be considered as an intangible asset as it also can’t be touched or seen. Still, its benefit will accrue till future time. These both help an entity to grow its business till the future

    See less
    • 0
Manvi
Manvi
In: >

External Users
  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization's activities. For example - Tax Authorities, Banks, Customers, Trade Unions, Government, Investors,Read more

    External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization’s activities.

    For example – Tax Authorities, Banks, Customers, Trade Unions, Government, Investors, or Creditors.

    External Users:

    • Investors – Investors are interested in the past performance and future earnings of the business. They want to track the performance of their business whether it is giving them any benefit or not. A business’s past information helps investors in assessing their investments.
    • Creditors or Suppliers – Some suppliers provide goods and services on credit, and before providing any credit they check the company’s ability to pay. Creditors are interested in the company’s liquidity i.e to see if a company can fulfill short-term obligations.
    • Customers – Customers are more interested in a company’s financial statement as they rely on them for goods and services. They check the ability of the company whether it is providing them good quality goods and will continue to provide them in future.
    • Banks – Banks are most likely interested in the liquidity and profitability of the company. They keep track of whether the company can pay the debt when it is due along with interest.
    • Government – The company’s activities are central to the economy and must be met by them. The government controls a company’s actions if they break a law or damage the environment.
    • Environmental agencies – They keep an eye on organizations whether their activities are harming the environment or not.
    • Trade unions – They take an active part in the decision-making process. They want to see the financial statements of the company and want to decide the compensation of the employees they represent.
    • Tax authorities – They determine whether the business has declared the correct amount of tax in its tax returns. They conduct audits of the tax returns to verify them with the accounting records disclosed.

    Here is a summary of external users

    See less
    • 0
Naina@123
Naina@123
In: >

  2. Radha M.Com, NET
    This answer was edited.

    Buildings S.No. Particulars Rate 1 Buildings which are used mainly for residential purposes except hotels and boarding houses. 5% 2 Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below. 10% 3 Buildings acquired on or after the 1st day oRead more

    Buildings
    S.No. Particulars Rate
    1 Buildings which are used mainly for residential purposes except hotels and boarding houses. 5%
    2 Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below. 10%
    3 Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infra- structure facilities. 40%
    4 Purely temporary erections such as wooden structures. 40%
    Furniture & Fittings
    S.No. Particulars Rate
    Furniture and fittings including electrical fittings. 10%
    Machinery & Plant
    S.No. Particulars Rate
    1  Machinery and plant other than those covered by sub-items (2), (3) and (8) below. 15%
    2 (i) Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after the 1st day of April, 1990 except those covered under entry (ii). 15%
    2 (ii) Motor cars, other than those used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020. 30%
    3 (i) Aeroplanes – Aero engines. 40%
    3 (ii) (a) Motor buses, motor lorries and motor taxis used in a business of running them on hire other than those covered under entry (b). 30%
    (b) Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020. 45%
    3 (iii) Commercial vehicle which is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999 and is put to use for any period before the 1st day of April, 1999 for the purposes of business or profession. 40%
    3 (iv) New commercial vehicle which is acquired on or after the 1st October, 1998, but before the 1st April, 1999 in replacement of condemned vehicle of over 15 years of age and is put to use for any period before the 1st day of April, 1999 for the purposes of business or profession. 40%
    3 (v) New commercial vehicle which is acquired on or after the 1st April, 1999 but before the 1st April, 2000 in replacement of condemned vehicle of over 15 years of age and is put to use before the 1st April, 2000 for the purposes of business or profession. 40%
    3 (vi) New commercial vehicle which is acquired on or after the 1st April, 2001 but before the 1st April, 2002 and is put to use before the 1st day of April, 2002 for the purposes of business or profession. 40%
    3 (via) New commercial vehicle which is acquired on or after the 1st January, 2009 but before the 1st October, 2009 and is put to use before the 1st October, 2009 for the purposes of business or profession. 40%
    3 (vii) Moulds used in rubber and plastic goods factories. 30%
    3 (viii) Air pollution control equipment. 40%
    3 (ix) Water pollution control equipment. 40%
    3 (x) Solid waste control equipments & solid waste recycling and resource recovery systems. 40%
    3 (xi) Machinery and plant, used in semi-conductor industry covering all integrated circuits (ICs). 30%
    3 (xia) Life saving medical equipment. 40%
    4  Containers made of glass or plastic used as re-fills. 40%
    5 Computers including computer software. 40%
    6 Machinery and plant, used in weaving, processing and garment sector of textile industry, which is purchased & put to use under TUFS on or after the 1st April, 2001 but before the 1st April, 2004. 40%
    7 Machinery and plant, acquired and installed on or after the 1st September, 2002 in a water supply project or a water treatment system and which is put to use for the purpose of business of providing infrastructure facility. 40%
    8 (i) Wooden parts used in artificial silk manufacturing machinery. 40%
    8 (ii) Cinematograph films – bulbs of studio lights. 40%
    8 (iii) Match factories – Wooden match frames. 40%
    8 (iv) Mines and quarries. 40%
    8 (v) Salt works – Salt pans, reservoirs and condensers, etc., made of earthy, sandy or clayey material or any other similar material. 40%
    8 (vi) Flour mills – Rollers. 40%
    8 (vii) Iron and steel industry – Rolling mill rolls. 40%
    8 (viii) Sugar works – Rollers. 40%
    8 (ix) Energy saving devices: (a) Specialised boilers and furnaces. 40%
    (b) Instrumentation and monitoring system for monitoring energy flows. 40%
    (c) Waste heat recovery equipment. 40%
    (d) Co-generation systems. 40%
    (e) Electrical equipment. 40%
    (f) Burners. 40%
    (g) Other equipment. 40%
    8 (x) Gas cylinders including valves and regulators. 40%
    8 (xi) Glass manufacturing concerns – Direct fire glass melting furnaces. 40%
    8 (xii) Mineral oil concerns: (a) Plant used in field operations (above ground) distribution – Returnable packages. 40%
    (b) Plant used in field operations (below ground), but not including kerbside pumps including underground tanks and fittings used in field operations (distribution) by mineral oil concerns. 40%
    (c) Oil wells not covered in clauses (a) and (b). 15%
    8 (ix) Renewal energy devices. 40%
    9 (i) Books owned by assessees carrying on a profession. 40%
    9 (ii) Books owned by assessees carrying on business in running lending libraries. 40%
    Ships
    S.No. Particulars Rate
    1 Ocean-going ships including dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes and fishing vessels with wooden hull. 20%
    2 Vessels ordinarily operating on inland waters, not covered by sub-item (3) below. 20%
    3 Vessels ordinarily operating on inland waters being speed boats. 20%
    Intangible Assets
    S.No. Particulars Rate
    1 Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature not being goodwill of business of profession. 25%

     

    See less
    • 0
Vijay
VijayCurious
In: >

  2. Radha M.Com, NET
    This answer was edited.

    Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense. Outstanding expenses are treated as a liability as the business is yet tRead more

    Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense.

    Outstanding expenses are treated as a liability as the business is yet to make payment against them. Examples of outstanding expenses include outstanding rent, salary, wages, etc.

    At the end of the accounting year, outstanding expenses have to be accounted for in the book of accounts so that the financial statements reflect the accurate profit/loss of the business.

    Journal entry for recording outstanding expenses:

    Expense A/c Debit
       To Outstanding Expenses A/c Credit
    (Being expenses outstanding at the end of the year)

    The concerned expense A/c is debited as there is an increase in expenses. Outstanding expenses are a liability, hence they are credited.

    Let me give you a simple example,

    Max, a sole proprietor pays 1,00,000 as salary for his employees at the end of every month. Due to the Covid-19 lockdown, he could not pay his employees’ salaries for March month. So the salary for March (1,00,000) will be treated as an outstanding expense. The following entry is made to record outstanding salaries for the year.

    Salary A/c   1,00,000
       To Outstanding Salaries A/c   1,00,000
    (Being salaries outstanding at the end of the year)

    At the end of the year, outstanding salary will be adjusted in the P&L A/c and it will be shown as a Current Liability in the Balance Sheet.

    See less
    • 0
Karan
Karan
In: >

A. Debit balance B. Credit balance C. Either Debit or Credit D. None of these

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The correct option is C. Either Debit or Credit. Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature. In the case of fluctuating partner’s capital, all the transactions relating to theRead more

    The correct option is C. Either Debit or Credit.

    Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature.

    In the case of fluctuating partner’s capital, all the transactions relating to the appropriation of profit, salary, commission, drawings, the introduction of capital, interest on capital etc. are passed through the partner’s capital account.

    The balance of partner’s capital is generally credit but sometimes it may show debit balance indicating that the business owes to partner.

    But when the partner’s capital account is of fixed nature, then separate partner’ current accounts are prepared. Through this account, all the transactions of revenue nature are passed like appropriation of profits, salary or commission paid to a partner, interest on capital and drawings. The balance of this account may be debit or credit.

    The debit balance means the partner has withdrawn a lot of amount as drawings in anticipation of profits. The credit balance means the partner owes to the business.

    The partner’s capital shows a fixed amount as capital and its balance is affected only when additional capital is introduced or capital is withdrawn. The balance of this account is always credit.

    The partner current account is prepared when the firm wants to show the revenue transactions and capital transactions related to the partner ‘capital separately.

    See less
    • 0
Bonnie
BonnieCurious
In: >

  2. Ayushi Curious Pursuing CA

    ‘Reserve and surplus’ is a heading under ‘Equities and Liabilities’ in which various reserves and surplus of profit of an enterprise appear. Reserve are the amount set aside to meet with uncertainties of the future. They have credit balance as they are internal liabilities of an enterprise. While ‘sRead more

    ‘Reserve and surplus’ is a heading under ‘Equities and Liabilities’ in which various reserves and surplus of profit of an enterprise appear. Reserve are the amount set aside to meet with uncertainties of the future. They have credit balance as they are internal liabilities of an enterprise. While ‘surplus’ generally means the surplus amount in the profit and loss A/c or the operating surplus in case of a non-profit organisation, reserves are of many types:

    1. Revenue reserve
    2. Specific reserves
    • Reserves created from shareholder’s contribution
    1. Capital reserve
    2. Secret reserves

    Let’s discuss each of the above:

    1. Revenue reserves:

    Revenue reserve has two different definitions.

    First – Revenue reserves are the reserves that are created out of the profit made by an enterprise in the ordinary course of business. As per this definition, the examples of revenue reserves are:

    • General reserve: There is no restriction on the purpose for which this reserve can be used. It is a free reserve. Generally, this reserve is used to pay dividends.
    • Debenture Redemption Reserve: This reserve is mandatory to be created by law. The purpose is to ensure the timely redemption of debentures.
    • Dividend Equalisation Reserve: This reserve is created to maintain a steady rate of dividend every year even if the enterprise reports loss in any financial year.
    • Capital Redemption Reserve: This reserve can be solely used to issue bonus shares to fill the void created in total capital by redemption of preference shares.
    • Workmen Compensation Reserve: This reserve is created to pay for uncertain compensation that an enterprise may be liable to pay to its employees.
    • Investment Fluctuation Reserve: This reserve is created out of the profit of

     

       Second: Revenue reserve is a reserve from which can be used to any use. It can be the payment of dividends, creation of other reserves or reinvestment in the business. It is another name for general reserve.

    1. Specific reserves

    These are the reserves that are restricted to specific purposes only. These reserves are not free reserves i.e. dividends cannot be declared out of these reserves. However, if in case such reserve is not a statutory reserve, an enterprise can very well use such reserves for other purposes too. Specific reserves can be further classified into two types:

    • Statutory specific reserves: These are reserves that are mandatory to be created to comply with legal provisions applicable to an enterprise. Use of such reserves is restricted to some specific purposes.

    If such reserves are not created whenever applicable or if the amount in such reserves is used for a purpose other than the purpose for which it is created, the enterprise can invite face legal consequences. The examples of statutory reserves are as follows:

    • Capital Redemption Reserve
    • Debenture Redemption Reserve
    • Securities Premium Reserve
    • Non – Statutory specific reserves: It is not mandatory to create such reserves. They are created to meet with specific uncertainties of the future.
    • Workmen Compensation Reserve
    • Investment Fluctuation Reserve

    Important Note: Statutory reserve in the context of insurance companies means the minimum amount of cash and marketable securities to be set aside to comply with legal requirements.

    • Reserves created from shareholder’s contribution

    This is a reserve that is created out of a shareholder’s contribution. Securities premium reserve is the only such reserve that is created out of such shareholder’s contribution.

     

    Securities Premium Reserve: It is a reserve that is created when securities of a company such as shares or debentures are issued at a premium. The share or debenture premium money is created for this reserve. The purposes of which this reserve may be used as per section 52 of the Companies Act, 2013 are as follows:

    • For the issue of fully paid bonus shares.
    • For meeting preliminary expenses incurred by the company
    • For meeting the expense, commission or discount allowed on the issue of securities of the company.
    • In providing premium payable on the redemption of preference shares.
    • For the purchase of its own shares or other securities under section 68.
    1. Capital Reserve:

    Capital reserve is a reserve that is created out of the profit made by an enterprise from its non-operating activities like

    • selling of capital assets(fixed assets) at a profit
    • buying a business at profit (where net assets acquired is more than the purchase consideration)

    This reserve is used to finance long term projects of a company like buying or construction of fixed assets, writing off capital losses( selling of fixed assets at loss).

    1. Secret Reserve:

    A secret reserve is a reserve that exists but its existence is not shown in the balance sheet of an enterprise. An enterprise creates such reserves to hide from its competitor that it is in a better financial position than it appears in its balance sheet. Although the creation of secret reserves is prohibited by law, there are provisions for banking companies to create such reserves.

    See less
    • 0
Ayushi
AyushiCurious
In: >

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Bank Reconciliation Statement or BRS is a statement prepared to reconcile the bank account balance as per the cashbook with the bank balance as per the passbook. This is done so because often the bank balance as per the cashbook does not match with the bank balance as per the passbook. BRS is usuallRead more

    Bank Reconciliation Statement or BRS is a statement prepared to reconcile the bank account balance as per the cashbook with the bank balance as per the passbook. This is done so because often the bank balance as per the cashbook does not match with the bank balance as per the passbook.

    BRS is usually prepared by the accountant of an entity to find out the causes of the difference between the bank balance as per cashbook and the bank balance as reported in the passbook. The frequency of preparation of BRS is usually monthly. Nowadays, many enterprises have computerised accounting systems which help in automatic bank reconciliation.

    Sometimes, BRS is also prepared by auditors during the audit of financial statements.

    The balance of the bank account column of the cashbook does not match the bank balance as per the passbook. This is due to many transactions like the following that go unnoticed by the accountant:

    • The credit of bank interest,
    • Auto-debit of bank charges,
    • Delay in the clearing of cheques deposited, for which debit is already given by the accountant.
    • Late presentment of cheque issued by enterprise, for credit is already given by the account.

    Differences also occur due to accounting errors like posting wrong amounts in the cashbook.

    To prepare the BRS, we have to start either with the bank balance as per cashbook, then add or subtract amounts to arrive at the bank balance as per passbook. Or we can do the vice verse. Here, the amounts we add or subtract are the amounts of items that are causes for the difference between the two balances.

    See less
    • 0
Aadil
AadilCurious
In: >

  2. GautamSaxena Curious .
    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 thatRead more

    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.

    See less
    • 0

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful