Opening stock refers to the value of unsold goods, raw materials, or inventory a business holds at the beginning of an accounting year. It is carried forward from the closing stock of the previous year and is essential in determining how much stock was available for sale in the current period. It helps calculate the cost of goods sold (COGS) and plays a key role in the preparation of the Trading Account.
It is recorded on the debit side of the Trading Account and added to the current year’s purchases. If the business is newly started, there will be no opening stock in the first year. Accurate recording ensures correct calculation of gross profit and inventory management.
Key Points:
- Refers to inventory available at the start of the financial year.
- Includes raw materials, finished goods, and work-in-progress.
- Appears on the debit side of the Trading Account.
- Added to purchases to calculate the total goods available for sale.
- Directly affects the gross profit
- Comes from the previous year’s closing stock.
Examples:
- On 1st April, a shop has ₹80,000 worth of unsold goods – this is opening stock.
- A manufacturer carries forward raw materials worth ₹25,000 – recorded as opening stock.