In this post, I am going to explain you everything about closing stock in Tally including creating a closing stock entry in tally.
In fact, today, you are going learn so much about closing stock in Tally that you will be surprised to know how it works.
You must have been in a situation where according to you the value of closing stock is different and the value shown in Tally is entirely different.
So, now what to do?
Or, you might have also thought that why closing stock is not shown in Trial Balance in Tally?
I am going to answer and explain the logic behind the above questions as well as going to pick up some other concepts and techniques related to closing stock in Tally.
We’ll go step by step, understanding each of the questions and the logic behind them in a simple and easy manner.
So, let’s start.
How Closing Stock is Calculated in Tally
Firstly, we will see how closing stock is calculated in Tally because if you will understand that, the other concepts will be really easy for you to catch up on.
When you pass a purchase entry in Tally, you buy goods. Now, before you sell them, they are assumed to be your closing stock in Tally.
For example, let’s say we bought 5 iPhone X (not really though ;)) for ₹1,00,000 each totaling to ₹5,00,000 and we passed a purchase entry in Tally for that.
Now, before you sell them, they are treated as closing stock in Tally.
See the picture below to understand it better. I created a purchase entry for the above iPhones and it is already counted as closing stock in Tally.
Ignore the Watches right now. I will be discussing a very interesting concept of closing stock through watches later in this post.
See the Purchases which is showing ₹5,02,500 out of which ₹2,500 is of watches and the remaining ₹5,00,000 are of iPhone X which we have purchased and the same is being shown as closing stock in Profit and Loss Account in Tally.
This also happens in reality too, but the difference is that we don’t record closing stock at the same time when we record purchases. We record closing stock at the end of the year when we need to file tax returns.
Now, if you sell some of the stock before the end of the year, it will be reduced from the closing stock and it will be treated as sales in Tally.
Continuing with above example, I sold 2 iPhones for ₹1,02,000 each which totals to ₹2,04,000. Now the closing stock in Tally will be different because we sold 2 phones and therefore they are not in our stock.
See the picture below to understand it better.
If you notice, there is a gross profit of ₹4,928.57 (₹928.57 is of watches) because we sold the iPhones for a profit of ₹2,000 each. Remember, we purchased them at ₹1,00,000 each and sold them at ₹1,02,000 each.
Another very important point I would like to describe is that what you are seeing in the above picture is what a normal profit and loss account looks like with the most basic entries in Tally.
Now that you know the calculation of closing stock in Tally, we will move onto our next topic which is about closing stock entry in Tally.
How to Pass Closing Stock Entry in Tally.ERP 9
If you have carefully read till now, I would like to draw your attention to one of the most important concepts of accounting in Tally and in general.
If you look closely to the profit and loss account in Tally, there is no closing stock entry in Tally.
This might be a shocking truth to you but it is the truth.
Let me explain it to you in simple words with the same example above of iPhones.
When I purchased 5 iPhones, it immediately became by closing stock in Tally and it will remain as closing stock until and unless I sell them before the financial year.
That means whatever I have in stock becomes automatically my closing stock and there is no need to pass a separate closing stock entry in Tally or in other words inventory entry in Tally.
Let’s look it from a real life scenario. Let’s say you are running a gift shop in which you sell gift cards, mugs, key-chains and so on.
At the end of the year on 31st March, you have 50 gift cards, 20 mugs and 70 key-chains with you. This is considered as your closing stock as from tomorrow a new financial year will start.
It is possible that you have bought some mugs a month before or some of the gift cards are 6 months old but the fact remains the same that they are closing stock currently because as I said, new financial year will start from the next day.
In our example of iPhones, we bought all of them at one date at the beginning of the year and so you may feel that how it can became closing stock at the beginning of the year.
But as I said, Tally automatically takes it as a closing stock because it calculates it on a daily basis and iPhones are in fact closing stock until and unless you sell them.
Another real life example about inventory in Tally or closing stock in Tally is about the opening stock becoming the closing stock and closing stock becoming the opening stock.
Don’t worry if you find it confusing because it actually is but I am here for you to simplify complex concepts about Tally and accounting.
So, how it is possible that opening stock in Tally becomes closing stock in Tally?
Let me explain you with an example once again.
At the beginning of the post, we bought 5 iPhones and sold 2 iPhones after that. So now, we have 3 iPhones.
Assume, this year is over. 3 iPhones are the closing stock of the year.
So, what will be the opening stock of the next year? The same 3 iPhones.
Now, assume another year is over and you still have 1 iPhone left from the opening stock.
What will the remaining iPhone be at the end of the second year again?
It will be closing stock in Tally.
You see, at the beginning the 5 iPhones were purchased and 3 iPhones became closing stock at the end of the year because we sold 2 of them.
Next year, the same 3 iPhones became the opening stock and at the end of the second year, the single iPhone remaining which once was opening stock has now become the closing stock.
This is how it works. It sounds complex but it is simple once you understand it.
Now, comes the real question once again and that is where is the closing stock entry in Tally?
As I said, there is nothing like closing stock entry in Tally and in accounting in general except if it requires any adjustment like valuation of closing stock in Tally.ERP 9 which is our next topic.
I am sure you are surprised to know that there is nothing like closing stock entry in Tally.
Till now, you have understood about calculation of closing stock in Tally and about closing stock entry in Tally.
Now, we will understand closing stock valuation in Tally.
Get ready for some FUN because now, you will see how I play with figures.
Closing Stock Valuation in Tally.ERP 9
There are many types closing stock valuation in Tally, but we will be focusing on the ones that are used widely.
Most widely used closing stock valuation methods are:
FIFO in Tally – First In First Out
This simply means whatever product that came in first will go out first.
For example, if I buy 2 watches, one for ₹1,000 and then after that one for ₹1,500. Both the watches are same and I sold one of them for ₹2,000.
According to FIFO, the one I sold is of 1,000 as it came first and it will be accounted as it went out first.
Therefore the value of closing stock will be ₹1,500 as per FIFO in Tally because that is the watch we have right now in our stock.
LIFO in Tally – Last in First Out
This method assumes that the product that is purchased last is sold first.
For example, there is a shop in which clothes are sold. Generally, newer clothes are sold first and older ones are sold in sale. This is LIFO in action.
And, so the valuation is done on the above basis.
Now, if we take above example of watches, the value of closing stock will be ₹1,000 as per LIFO in Tally as it will be assumed that the last watch of ₹1,500 is sold first.
WAM in Tally – Weighted Average Method
As the name says, closing stock is valued by taking the weighted average of the purchases.
For example, there are hundreds of products in a stationery shop and they range in almost a same price point and therefore it is a good place to adopt WAM for closing stock valuation.
If we take the above example of watches the value of the closing stock will be ₹1,250 which is the weighted average of both the watches.
From the above three methods of closing stock valuation, most widely used method is FIFO because it suits most of the businesses.
Now, you must be thinking, how the valuation of closing stock is done in Tally.ERP 9?
Well, if you know how you can change default stock valuation method in Tally, you will automatically know how closing stock in Tally is valued.
So, let’s jump right in to see how you can change the default stock valuation in Tally.ERP 9.
How to change default stock valuation method in Tally.ERP 9
For explaining how closing stock is valued in Tally.ERP 9, I will be taking the above example of watches.
But before I start, I will have to delete the entries of iPhones to make the picture clear to you as well only have the watches as closing stock in Tally.
I have already passed a purchase entry in Tally for watches one after the another. In short, I have purchased one watch on 1st April 2017 for ₹1,000 and second watch on 2nd April for ₹1,500.
After passing the purchase entry for the watches or in other words, inventory entry in Tally as above, you need to go to Stock Summary from Gateway of Tally.
Closing stock in Stock Summary is exactly the same as closing stock in balance sheet in Tally.
Right now, I am assuming you have passed the closing stock entry in Tally which is actually a purchase entry and you are in Stock Summary.
If you have passed the same closing stock entry in Tally as I have created, you will see the same closing stock valuation in Tally as I am currently seeing in the picture below.
Now, we will change the default stock valuation method in Tally.ERP 9 to FIFO. There are two types of FIFO methods in Tally. They are:
- FIFO &
- FIFO Perpetual
FIFO Perpetual means the stock valuation done by Tally will be of all the years for which you have passed entry in Tally.
On the other hand in just FIFO, closing stock valuation will be done for this year only.
So, if you have created closing stock entry in Tally for just one year, the closing stock valuation in Tally as per FIFO and FIFO Perpetual will be the same.
Let’s now the change the closing stock valuation to FIFO Perpetual in Tally.ERP 9.
Changing Closing Stock Valuation to FIFO Perpetual in Tally
- From Stock Summary, press ALT+C which is a shortcut for New Column.
- We can enter the information which we want to see in this new column which is actually about changing method of stock valuation in Tally.
- Now, enter the opening and closing date which is 01-04-2017 and 31-03-2018 respectively.
- In the option Name of Group, select the group in which you have the stock items for which you want to change the method of stock valuation.
- Now comes the final option which is Method of Stock Valuation. Select FIFO Perpetual.
Here is how the settings should be.
You will see two columns in the Stock Summary, one of which will be the default method of stock valuation in Tally and the other will be FIFO Perpetual method of Stock Valuation in Tally.
As we have calculated the closing stock value under FIFO which is ₹1,500, in Tally, you will see the same amount of ₹1,500 in the FIFO Perpetual column and ₹1,250 in the Default column in Stock Summary.
Changing Closing Stock Valuation to LIFO Perpetual in Tally
Now, we will change the closing stock valuation method to LIFO.
Again, there are two types of LIFO methodology in Tally and they are LIFO Annual and LIFO Perpetual.
It works in a similar way as I just said about FIFO and FIFO Perpetual. LIFO Annual is for yearly valuation and LIFO Perpetual takes all the years for valuation for which you have created stock items or passed the entries in Tally.
For changing the closing stock valuation from FIFO Perpetual to LIFO Perpetual, we will follow same steps as above but with a little change.
- Press ALT+A which is a shortcut for Alter Column in Tally.
- You will see everything entered in the options as have entered it while changing the method to FIFO Perpetual.
- Just change the last option which is Method of Valuation to LIFO Perpetual.
As I have explained above in LIFO section, the value of closing stock will be ₹1,000 as against ₹1,500 in FIFO Perpetual and ₹1,250 in Default.
You will see two columns of which one is for Default and the other is for LIFO Perpetual.
Changing Closing Stock Valuation to Avg. Cost in Tally
We will now change the method of closing stock valuation in Tally to Weighted Average Method in Tally.
You might have guessed what to do now to change the stock valuation method in Tally to Weighted Average Method in Tally.
If not, let me help you out.
- Press ALT+A and select Avg. Cost option in the list of valuation methods in Tally.
Congratulations! You have just changed the method of stock valuation in Tally once again by pressing some buttons on your keyboard.
Interestingly, you will see both the columns which are Default and Avg. Cost exactly the same which is ₹1,250.
And, this is what I have explained above in Closing Stock Valuation section.
Different closing stock methods are suitable for different businesses and no one method is better than the other. They are just different and are developed to suit different business needs.
Depending up on your business, select the required closing stock method Tally for the most accurate valuation.
You can also select different methods and see the difference in the valuation and the take the decision.
Closing Stock in Trial Balance in Tally
A question that has been asked by many people and still they are confused about it. That is about Closing Stock in Trial Balance in Tally.
If you are searching for closing stock in Trial Balance, you won’t find it because there is a simple reason for that.
The reason is what I have explained at the beginning of the post and that is there is no entry for closing stock because whatever you purchase or your opening stock becomes closing stock automatically until you sell it.
Therefore, if Purchases are included in the Trial Balance and Opening Stock is also included in Trial Balance, there is no need for including Closing Stock in Trial Balance.
As there is no closing stock entry in Tally, there is no closing stock in Trial Balance in Tally.
If we include closing stock in trial balance in Tally, it will be recorded two times. Firstly, closing stock is recorded when we record purchases and opening stock and secondly if we again put the closing stock in trial balance.
This is the reason why closing stock is not included in trial balance in Tally or accounting in general.
Everything about Closing Stock in Tally in Video
How to create Opening Stock Entry in Tally
We have talked a lot about closing stock in Tally. We have also talked about closing stock entry in Tally.
We will now talk a little bit about opening stock in Tally because what is opening stock of this year was the closing stock of the previous year.
You’ll be again surprised to know that as there is nothing like closing stock entry in Tally, there is nothing like opening stock entry in Tally too.
Because as I said, closing stock becomes the opening stock and opening stock becomes the closing stock if it is not sold.
Talking about opening stock, let’s see how you can enter opening stock value in Tally.ERP 9.
In other words, we are going to enter opening balance to Stock Item in Tally.
We already have a stock item called Watch and we will add the opening balance to it right now. So, let’s start.
- From Gateway of Tally, go to Inventory Info.
- Then, select Stock Items.
- Now, select Alter under the menu, Single Stock Item.
- Select Watch from the List of Stock Items.
- Now, you will see a Stock Item Alteration Screen which is of pink color.
- In the bottom part of the screen, you will see a section for entering the opening balance.
- Enter the Quantity, Rate and the Value will be automatically calculated.
- For this example, we will enter 5 Quantity at the rate of ₹1,000 so the value will be ₹5,000.
- Lastly, press Enter and when you are asked to Accept, press Enter once again.
This is the way you can enter the opening stock manually in Tally.
If you see the opening stock in Trial Balance in Tally which you can access through the following steps.
- From Gateway of Tally, go to Display.
- Select Trial Balance.
- In Current Assets, select Opening Stock and you will see the opening stock of watch which we have just entered.
- This is it about Opening Stock and Opening Balance in Tally.
At the End…
I am sure in this long post, you have learnt a lot about Closing Stock in Tally as well as Closing Stock Valuation in Tally.
I have tried to emphasize on closing stock more in this post because that is what most of the people want to know about.
I have tried to gather almost everything about closing stock in Tally and put it together in a way you would like to read and gain more knowledge about Tally.
In this post, I have covered closing stock entry in Tally, closing stock calculation in Tally, closing stock valuation in Tally and a little bit about opening stock entry in Tally.
I hope.. No. I am sure you have learned something new today about closing stock in Tally but still if you have questions or suggestions, you know what to do.
Just comment down below and I’ll answer each of them.