Page 131 - Account 10

Since this stock is brought forward to the beginning of the current year with its value
(stock is generally valued on the basis of cost price or present market price whichever is
less), it is assumed as an expense to the current year and thus, charged on the debit side
of trading A/c.
ii. Purchase and Purchase Return
Purchases refer to all the cash as well as credit purchases of goods (but not of capital
assets) during a year. It is a revenue nature expense on materials or goods purchased for
the regular dealing of a business concern. Sometimes materials/goods of some value may
be returned to the supplier, specially out of the credit purchases, such a return is termed
as purchase return, return outward or return to suppliers. In such a case, net purchase of
the year should be found by deducting the total purchase return from the total purchases
of the year. The purchase is always charged on the debit side of the trading A/c by
deducting the returns, if any.
iii. Purchasing Expenses
The expenses made on the carriage of goods from the supplier’s place up to the
godown of the buyer are known as purchasing expenses or in other words the expenses
made during the transit for the goods bought are known as purchasing or buying expenses.
There are a number of such expenses. So, examples of such expenses are as given below:

Clearing charges Loading and unloading expenses
Shipping and railway freight Import duty
Carriage on purchase Octroi charges/local taxes
Carriage and cartage etc.

iv. Factory Expenses
All the expenses (both of direct and indirect nature) incurred inside the factory for
production or manufacturing of the goods is called factory expense. These expenses are
debited in trading A/c. The following are some of the examples of factory expenses:

Wages, Productive expenses, Manufacturing expenses, Factory expenses like factory
rent, factory insurance, factory heating and lighting, etc., Motive power like; coal,
water and electricity, fuel, gas, oil etc. Consumable store like; engine oil, cotton,
wastage or rags, soap paper, royalty, etc.

Note: Royalty refers to the payment in the form of rent, payable to the owner of an
asset such as patentee, author or landlord for acquiring the right to use his patent,
copyright or land. If royalty is paid on the basis of production, it is regarded as
production expense and thus, debited to trading A/c, if it is paid on the basis of
sales, it is regarded as selling expense and thus debited to profit and loss A/c and if
it is paid in lump sum, it is regarded as a capital expenditure and thus, mentioned in
the assets side of balance sheet.

130 Aakar’s Office Practice and Accountancy - 10 Final Accounts 131