Double entry primer page 43

Double Entry For Closing Stock

It is assumed that Closing Stock figures are derived from a separate system.

One (same) closing stock figure will appear in two statements, namely Profit & Loss (under Cost of Sale category) and Balance Sheet (under Current Assets category). So, in the ACCOUNT DEBIT column, enter the account name of the closing stock which will go to the Current Assets category in the Balance Sheet. In the ACCOUNT-CREDIT column, enter the account name of the closing stock which will go to the Cost of Sale category in the Profit & Loss statement. Thus you need two accounts for the same stock figure, e.g. C/S-RAW MATERIAL CA will go to Current Assets while C/S-RAW MATERIAL COSA will go to Cost of Sale.

Similarly, your chart of accounts in the sheet TB must contain these two accounts. This double entry somewhat differs from the common treatment of Closing Stock.

However, due to the way the closing stock figure is to be captured into the Balance Sheet and Profit & Loss statement, this unique way of handling is required.

Usually, we segregate closing stock into 3 categories i.e. RAW MATERIAL, FINISHED PRODUCT and SEMI-FINISHED PRODUCT. So, the double entries would be:

DR: RAW MATERIAL CA		CR: RAW MATERIAL-COSA
DR: FINISHED PRODUCT-CA		CR: FINISHED PRODUCT COSA
DR: SEMI-FINISHED PRODUCT-CA	CR: SEMI-FINISHED PRODUCT-COSA

Unequal Number Of Double Entries In The Audit Adjustment

Sometimes, the audit adjustment does not contain the same number of Debit and Credit entries. For example, an adjustment may involve one Debit entry and 2 Credit entries:

DR: Furniture $15,000	CR: Upkeep of Building $10,000
			CR: Upkeep of Equipment $5,000

43

In cases like this, we need to split the Debit entries into the same number of entries as the Credit entries :

DR: Furniture $10,000	CR: Upkeep of Building $10,000
DR: Furniture $5,000	CR: Upkeep of Equipment $5,000

This will take up 2 rows (one entry per row, so two entries take 2 rows).