Page 132 - Account 10

Credit Side Items of Trading A/c

i. Sales and Sales Returns
Sales refer to the cash as well as the credit sales of goods (not of the capital assets)
during a year. It is a revenue nature income of a business concern for the year. It includes
the sales of goods, which have been purchased for resale or manufacturing purpose. It
also includes the goods already sold but remained undeliverable. Sometimes, goods of
some value may be returned by the customers, specially from out of the credit sales and
it is termed as sales returns, return inward or returns from customers. Such a return is
deducted from the total sales in order to find out the net sales for the year. Sales are
always credited in trading A/c by deducting sales returns, if any.

ii. Closing Stock
There may be a stock of raw materials, work-in-progress or finished goods in a firm
or company at the end of an accounting year in course of its business dealing, which
is known as closing stock. Thus, closing stock refers to the stock of unused material or
unsold goods remained at the end of the current accounting year. It is the unused material
or unsold good and thus, deductible from purchase. So, it is credited in trading A/c (it
must be carried forward to the beginning of the coming accounting year and thus, it is
credited in trading A/c by creating it as A/c rather than deducting from purchase), on
one hand and it is a property to the concern until it is used or sold thus, regarded as an
asset and is mentioned in the balance sheet on the other.
Normally, it is given outside the trial balance because its valuation is made after the
accounts have been closed and the trial balance is prepared. Thus, as a new finding or
transaction, it is recorded twice in the final accounts once on the credit side of trading,
A/c and then in the assets side of balance sheet according to the principle of double entry
book-keeping.

iii. Abnormal Loss of Goods
Sometimes, there may be an abnormal loss of goods due to fire, theft or other natural
disasters. The full value of such a loss (whether recovered from insurance co. or not)
should be credited to trading A/c to ascertain the gross result of the normal business
operation of a concern.
It should be noted, however, that if the total value of such an abnormal loss of the goods
is assured to compensate by the insurance company, it should be mentioned further once
in the assets side of the balance sheet as ‘insurance claim receivables; if not assured to
compensate, then the total of this loss should be charged on the debit side of profit and
loss A/c as ‘To goods lost, and by again if it is assured to compensate a certain portion of
the loss, that portion mentioned in the balance sheet assets side and the portion of loss,
which is not assured to be compensated should be charged on the debit side of profit and
loss A/c as a business loss.

132 Aakar’s Office Practice and Accountancy - 10 Final Accounts 133