When goods are sent to the branch at a loaded price, we reverse the entry (in excess to the loaded price) but when opening stock or closing stock is entered we on the opposite side dr./ cr. stock reserve account, why do we do that since we are already reversing the loaded price as soon as branch receives the goods?
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In branch accounting, when goods are sent to a branch at a loaded price, it means that the goods are sent at a price that includes not only the cost of the goods themselves but also additional costs such as transportation, handling, and other expenses. The idea behind sending goods at a loaded price is to ensure that the branch has all the necessary goods and is not burdened with additional costs for these goods.
Here’s a breakdown of the accounting treatment for this scenario:
Now, regarding the question about opening and closing stock:
So, the reason for crediting the Stock Reserve Account in the case of opening and closing stock is to adjust for any overvaluation or undervaluation of inventory, which can happen due to changes in market prices or discrepancies between the loaded price and the actual cost. It ensures that the branch’s financial statements reflect a more accurate value for the inventory on hand. This practice helps in presenting a more realistic picture of the branch’s financial position.
In branch accounting, when goods are sent to a branch at a loaded price, it means that the goods are sent at a price that includes not only the cost of the goods themselves but also additional costs such as transportation, handling, and other expenses. The idea behind sending goods at a loaded price is to ensure that the branch has all the necessary goods and is not burdened with additional costs for these goods.
Here’s a breakdown of the accounting treatment for this scenario:
Now, regarding the question about opening and closing stock:
So, the reason for crediting the Stock Reserve Account in the case of opening and closing stock is to adjust for any overvaluation or undervaluation of inventory, which can happen due to changes in market prices or discrepancies between the loaded price and the actual cost. It ensures that the branch’s financial statements reflect a more accurate value for the inventory on hand. This practice helps in presenting a more realistic picture of the branch’s financial position.