Closing Stock as an Adjustment

Closing Stock as an Adjustment

When Closing Stock is given INSIDE the Trial Balance (as in the previous chapter), it means it has already been recorded through a Purchases-adjustment entry, and it goes ONLY to the Balance Sheet, not to the Trading Account.

When Closing Stock is given as an adjustment OUTSIDE the Trial Balance (the more common case, and the one this chapter builds on), the physical stock-taking value has been established at year end but not yet recorded in the books at all — so it needs its FULL double effect:

Double effect:

1. Credit side of the Trading Account — shown as "By Closing Stock," reducing the cost of goods sold figure implicit in the account.
2. Assets side of the Balance Sheet — shown as a current asset, valued at cost or net realisable (market) value, whichever is LOWER (the conservatism/prudence principle — never anticipate a gain, but do provide for a loss).