Ap2

sscors
sscors Registered Posts: 72 Epic contributor 🐘
in AAT Level 3 (Level 6 in Scotland)
Hello

if anyone understands this please could you explain to me.
Why when putting the following into a trial balance

Stock at 30 June 20X4- balance sheet- 8300
Stock at 30 June 20X4- P&L- 8300

The balance sheet figure is a credit and the p&l figure is a debit?

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  • sdv
    sdv Registered Posts: 585 Epic contributor 🐘
    sscors wrote: »
    Hello

    if anyone understands this please could you explain to me.
    Why when putting the following into a trial balance

    Stock at 30 June 20X4- balance sheet- 8300
    Stock at 30 June 20X4- P&L- 8300

    The balance sheet figure is a credit and the p&l figure is a debit?

    There is no account for closing stock in the main ledger.

    Closing stock is actually unsold purchases. Therefore it is part of purchases and is inculded in the debit balance of purchses. However it is UNSOLD stock and therefore to reduce the purchases a closing stock (P&L) a/c is opended and CREDTED in that account.

    In main ledger there must always be a double entry. Debit must equal to Credit.

    If you credit a closing stock (P&P) then you must complete the double entry by debiting Closing Stock (BS)

    Closing Stock (BS) is unsold purchases therefore it must be a debit balance. Unsold stock is an asset of a company and there fore it must be posed to the Balance sheet.

    Hope this helps.
  • Richard
    Richard Registered Posts: 373 Dedicated contributor 🦉
    When materials/items are purchased, the cost is debited to the P&L, and is used to establish the 'cost of sales'. If at the end of the period, you have unsold purchases, it would be incorrect to match these with the sales for the period as it wouldn't provide an accurate figure of how much it has cost the business to produce the goods sold.

    Therefore, the balance sheet is debited for the closing stock, as it is an asset, and the P&L is credited.

    It may help you to think of it as a prepayment - you have purchased items now, that will be used to generate future sales. So like a prepayment, you will debit the balance sheet and credit P&L, and then reverse the entry at the start of the next financial year.
  • sscors
    sscors Registered Posts: 72 Epic contributor 🐘
    Thanks for the brilliant answers

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