Session 9 - Adjustment of closing stock

Session Plan : Adjustment of closing stock

Introduction (5 min): Explain meaning of closing stock and its role in final accounts.

Concept & Accounting Treatment (10 min): Discuss how closing stock is adjusted in Trading A/c, P&L A/c, and Balance Sheet.

Illustrations (15 min): Solve examples showing journal entries and effect on accounts.

Class Activity (10 min): Students practice adjustment of closing stock with given data.

Recap & Q/A (5 min): Summarize importance and clarify doubts.

1. Closing Stock

Definition: Closing stock represents the value of unsold goods at the end of an accounting period.

Treatment:

Journal Entry:

Closing Stock A/C Dr.

To Trading A/C

Scenario: A business has unsold inventory worth ₹50,000 at the end of the accounting period.

Journal Entry:

Closing Stock A/C Dr. ₹50,000

To Trading A/C ₹50,000

Impact:

Trading Account: Closing stock is credited, reducing the cost of goods sold and increasing gross profit.
Balance Sheet: Closing stock appears under current assets.

Case studies on impact of incorrect stock valuation on profit reporting.

IFRS / Ind AS standards on Inventory Valuation (Ind AS 2).

Research on inventory management and financial reporting accuracy.

Define Closing Stock. Why is it adjusted in final accounts?

Explain the treatment of Closing Stock when given:

Why is stock valued at cost or net realizable value, whichever is lower?

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