The journal entry for the dividend collected by the bank is as follows:

Here, Bank Account is debited and the Dividend Received Account is credited. This treatment is explained below.

The logic behind the journal entry

This can be explained through the following rules of accounting:

• Golden rules of accounting
• Modern rules of accounting

Golden rules of accounting

A bank account is a real account and the golden rule of accounting for the real account is, “Debit what comes in and credit what goes out”

Hence, the bank account is debited as the money is coming into the bank.

Dividend is an income hence dividend received is a nominal account. The golden rule of accounting for a nominal account is “Debit all expenses and losses and credit all income and gains”

Hence, the dividend received account is credited as income.

Modern rules of accounting

As per modern rules of accounting, a bank account is an asset account.

The asset account is debited when increased and credited when decreased.

Hence, the Bank account is debited here as it is increased.

A dividend received account is an income account.

The income account is credited when increase and debited when decreased.

Hence, the dividend received account is credited here as it is increased.

Treatment in the financial statements

Since the dividend received is an income; it is shown on the credit side of the Statement of profit and loss.

The bank account is an asset so it will be shown on the balance sheet.

Brief Introduction

The stock of finished goods left unsold at the end of the year is known as closing stock. As closing stock represent an asset i.e. the unsold finished goods,  it has a debit balance.

Closing stock appears on the credit side of the trading account and on the asset side of the balance sheet. But, if closing stock is adjusted against purchase i.e. deducted from purchase account balance, then it doesn’t appear in the trading account.

It is always shown on the asset of the balance irrespective of its treatment as discussed above because it is an asset.

Though no ledger is maintained for closing stock in financial accounts of a business, the journal entry for the closing stock is passed and is as below:

Closing stock A/c     Dr    Amt

  To Trading A/c                    Amt

(When the closing stock appears in trading a/c)

OR

Closing stock A/c     Dr       Amt

  To Purchase A/c                   Amt

(When closing stock is adjusted against purchase A/c and not shown in trading a/c)

Generally, the closing stock is shown separately in the trial balance because it is already part of the purchase account balance.

Closing stock is ascertained at the end of the financial year and it has great importance as it directly affects the gross profit or loss of a business. Closing stock at end of a year becomes the opening stock of the next financial year.

Numerical Example

ABC trading reported the following particulars at the end of the financial year 20X2-20X3:

We will draw the trading and P/L account and balance sheet of ABC Trading using the above information.

As the closing stock is not given, we will calculate the closing stock as a balancing figure.

It can be also calculated using this formula:

Closing stock = Opening stock + Purchase + Gross Profit – Sales