Question

The adjustment with regard to the closing stock is done ____________.

• A. by crediting it to the trading and profit and loss account
• B. by showing it on the asset side of the balance sheet
• C. by showing it on the liabilities side of the balance sheet
• D. Both A & B

Answer 1

The correct option is D Both A & B

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period.

The adjustment with regard to the closing stock is done by

(i) by crediting it to the trading and profit and loss account, and

(ii) by showing it on the asset side of the balance sheet. The adjustment entry to be recorded in this regard is:

Closing Stock A/c Dr.

To Trading A/c

The closing stock of the year becomes the opening stock of the next year and is reflected in the trial balance of the next year.