Page 150 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes In this problem, the sales and purchases are given in two different categories viz. cash and credit.
The credit and cash purchases and sales of a firm should be added to determine the total

volume of purchases and sales made during the year.
The purpose of crediting the closing stock in the trading account is to fi nd out the materials or

goods consumed for trading purposes. In order to find out the total amount of goods or materials
consumed during a year, three different components are to be separately considered.
1. Opening stock
2. Purchases and

3. Closing Stock
Opening Stock: It is a stock of goods or raw materials available at the opening of the accounting
period, which is nothing but a closing stock of the yester accounting period utilized for trading
during the current year.
Purchases: Purchase of goods or raw materials is either for resale or manufacturing.

Closing Stock: It is a stock nothing but an outcome of lesser volume of sales than the aggregate
of opening stock and purchases.
Material consumed could be calculated as:
Material consumption = Opening stock + Purchases-Closing stock
The closing stock is credited in the trading account instead of deducting it directly from the
aggregate of opening stock and purchases during the year. The posting of the closing stock

under the credit side of the trading account not only helps the fi rm to find out the consumption
during the year but also reduces the cost of goods sold incurred during the year.
Solution:
Dr Trading Account Cr
for the year ended 31st March 2006
` `
To Opening stock 4,000 By Credit sales 20,000
To Credit purchases 20,000 By Cash sales 60,000
To Cash purchases 50,000 By Total sales 80,000
To Total purchases 70,000 By Closing stock 6,000
To Gross profi t c/d 12,000
86,000 86,000
By Gross profi t B/d 12,000
Illustration with Opening stock, Closing stock, cash, credit and returns of sales and
purchases and other major expenses of trading/manufacturing.

Illustration 3: Prepare trading account of M/s Sundar and sons as on 31st March 2005
`
Opening stock on 1st April 2004 50,000
Purchases
Cash 1,20,000
Credit 1,00,000
Sales
Cash 40,000
Credit 1,00,000
Purchase Returns 20,000

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