Monika Sharma ma'am,with reference to my previous query about changes in inventory of WIP,etc..I am unable to understand why opening stock is treated as an expense and closing stock an income.Pls explain the fundamentals.Thanks in advance :)
Dear Student,
Please don't get confused with the concepts. We understand that the changes in inventory are recorded in the manner as explained by you in your previous query. This can be understood in the below mentioned manner.
If I ask you, how would your record different direct expenses incurred by your business or what is the treatment of opening stock, then I believe your answer would be simply 'we debit it to trading account'. On the similar line of thought deduction of closing stock from opening stock would provide you with the figure of 'stock consumed by the firm'. E.g. If we have Opening Stock as Rs 20,000 and at the end of period stock worth Rs 5,000 is still available, this shows that stock worth Rs 15,000 has been consumed. And I think such consumption expenditure should not be provided with any other treatment than recording it as an expense. This was what Monika Ma'am was trying to explain by making you straight forwardly treat opening stock as an expense (as it is debited to trading account) and closing stock as income (as it is credited to trading account).
Hope this clarifies your doubt:)
Please don't get confused with the concepts. We understand that the changes in inventory are recorded in the manner as explained by you in your previous query. This can be understood in the below mentioned manner.
If I ask you, how would your record different direct expenses incurred by your business or what is the treatment of opening stock, then I believe your answer would be simply 'we debit it to trading account'. On the similar line of thought deduction of closing stock from opening stock would provide you with the figure of 'stock consumed by the firm'. E.g. If we have Opening Stock as Rs 20,000 and at the end of period stock worth Rs 5,000 is still available, this shows that stock worth Rs 15,000 has been consumed. And I think such consumption expenditure should not be provided with any other treatment than recording it as an expense. This was what Monika Ma'am was trying to explain by making you straight forwardly treat opening stock as an expense (as it is debited to trading account) and closing stock as income (as it is credited to trading account).
Hope this clarifies your doubt:)