In this session, we will be learning about what is the profit gain? What is the loss? What is the discount and what are the types of discount? What is goods and what does a stock or inventory. So let's begin profit, the excess of revenue, the period over its related expense during that accounting period is the profit. So, in simple terms profit is equal to your revenue minus related expenses.
Now, accounting period accounting period is usually a year. Similarly, a profit can be calculated for a month or a particular quarter or for six months that is half year gain, the profit that arises from the events or transactions which are incident to the business's gain. So, there may be some profit that is arising out of some events or transactions. Now, they are incidental to business but those events or transactions are not recurring in nature. So, such profit is known as gain for example, sale on fixed asset okay. So, whenever we see a fixed asset if there is a profit it is known as gain winning a court case again this is not recurring than appreciation in the value of the asset.
Okay. So, these are some of the examples of gain loss the excess of expenses of the period over its related revenue is termed as loss. It decreases owner's equity. So, Whenever the expense is the nexus of the revenue, it is known as loss. Now, there may be some losses which are incurred from events or transactions related to the business, they are also termed as a loss and they are separately recorded in the books of accounts, it may be loss on sale of asset This is not recurring loss by fire or loss by tech, this was about profit gain and loss. This count it is a deduction in the price of goods sold.
Now, types of discount So, discount may be of two types trade discount and the cash discount. Trade discount is offering deduction of aggregate percentage of list price at the time of sale of goods and the is not recorded separately in the books of accounts record that the net amount okay. So, this discount is offered at the time of sale of goods and it is offered as a percentage on the list price. Whereas, cash discount as the name itself suggests it is offered when the amount is paid by the details and it is recorded separately in the books of accounts. Now, let's see one example. Now, this is a business we are dealers in laptops, the list price of laptop is rupees 50,000.
Okay, now, there is a festival sale wherein we provide 10% discount on your list price or Mr. So the price of laptop will be 50,000 minus 5000. That is 45,000. Now this 5000 that is 10% on MRP is trade discount. So, trade discount is directly on your sale price or your list price and it is not recorded in the books of accounts so, while recording the seal will record at that 45,000 and this discount since it's a faster sale it will be given to all the buyers the straight discount after to discount the prizes 45,000 Now, there are three customers Mr. He he purchased one laptop for 45,000 and he face immediately.
Now again, we have some offers on cash discount offer is we offer 10% discount if the amount is paid within eight days and 5% if the amount is paid inner month and no discount, if amount the speed after a month. So Mr a is immediately so he will get 10% off on 45,000 so that comes to 4500. So, net amount b minus j will be 45,000 minus 4500 that comes to 4500. Now, this 4500 is a cash discount, and it is separately recorded in the books of account as expense. Now, let's take one more example, Mr. B. He has also purchased a laptop for 45,000 Phase after 15 days.
So, he has paid after eight days, but he has paid within a month. So, he will be getting a cash discount of 5%. So, net amount we will buy beers to 5000 minus 5% of 45,000 that comes to 250 40 to 750. So, amount due from Mr B was 45,000 we provided him cash discount of two to five zero and that amount payable by him is 42 750. So, this cash discount again is recorded separately in the books of accounts, Mr C, he paid after two months. So, as for the scheme there is no discount available to him.
So among people will be 45,000 and there is no cash discount. So, the What's the difference between a trade discount and a cash discount? So this was about discount Goods it refers to a product in which the business is dealing. The goods may be purchased and directly sold to the customer or it may be produced and sold, or it may be used while providing services to the customers. The items that are used for the purpose of business for long term are not goods but are known as assets. Now let's see an example to understand what is goods.
This is a business. We are in the business of manufacturing water purifier And he also provide services of maintenance of water purifiers. Now, for the manufacturing of water purifiers, we need some goods like we need some pipes, we need filters and miscellaneous items. Now all these are used for manufacturing a water purifier. So these are known as goods raw materials. Now, this water purifier, we are selling it to Mr. e. He's a dealer.
So what he does is he purchases water purifier from us and then he sells in the market so for Mr. He when he spoke chasing a water purifier for him, it's a goods since he's selling it back in the market. So it is goods which are purchased and directly sold to the customer for Mr. e. Then there is ABC limited. It is a company which is manufacturing ketchup, it has ordered 100 water purifiers okay to install it in the factory and that water purifiers will be used for making a capture. Now this the water purifiers which are installed in the factory of Messrs ABC limited now for ABC limited. These are used for the purpose of business for long term.
So for ABC limited this is not good business assets. But for us, we are in the business of manufacturing water purifiers and providing services and selling it. So, for us it will be goods, but for ABC limited, it will be assets, Mr. C, Mr. C is a customer and he requires some annual maintenance we are providing him some annual maintenance and for the purpose of annual maintenance, we are replacing some filter and pipes for Mr C. Now, here we are providing services. So, along with services, we are also providing in some goods like filter and pipes. So, this is goods for us. Mr. C is using it, it for personal purposes.
So, Since it does not relate to business, it does not goods for him it he is using it for personal purpose at home okay. So, the goods, it may be directly purchased or sold to the customer like in case of Mr e or it may be produced or sold that does in case of this business where the water purifiers are produced and sold or it may be used during providing services like in this case, we are providing service to Mr C and we are using this goods we are replacing this filter and pipe with the old ones. So, we are using this goods while providing the services so, again these are goods for our business but since Mr. C is using it for personal purposes, not goods for him. So this was about goods Or inventory. It refers to quantity and value of goods, spares and other items as on a particular date.
Opening stock beginning inventory is the quantity value of the stock at beginning of the accounting period. Whereas closing stock closing inventory is the value and the quantity of the stock at the end of accounting period. Now, let's see an example say our accounting period ends on 31st march of every year. Okay, so 31st March 2019. Now we started our business on first Jan 2019. So as on first Jan 2019, we have purchased 10 units of air conditioners we are dealers of air conditioner, so with then the speed Did there were or just a sale purchase or sale of air conditioners, and as of 31st, March 2019 buy units of air conditioners, which were in the stock.
So, the stand ACS were at the beginning of our business. So, this is opening stock or beginning inventory, these fi units is on 31st March 2019, that is and the end of our accounting period. So, this is known as a closing stock or closing inventory. Now, this closing stock will become opening stock for the next accounting period. That is the next accounting period, a strong one for 2019, the 31st March 2020. So this By units of closing stock will become opening stock for next accounting period.
So basically stock or inventory refers to value and the quantity of goods as on a particular date. Now, let's take one more example for a trading concern. Stock line at the beginning of period is opening stock and stock lying at the end of the period is closing stock. Now for manufacturing concern, there may be three types of opening stock and closing stock. Let's give an example here business of manufacturing of cases same example. Okay, now for that business there are certain parts that are required to be purchased.
Let's name it as p one p two p three p four a using one part of P one p two p three and P four. All the spots are assembled and managed Factor one p one one p two one p three and P four and one AC is made out of this. Now, this assembly this process, it takes 12 days to manufacture one AC manufacturing AC is a continuous process irrespective of whether it is the end of accounting period or beginning of accounting period. So, there is no shutdown at the end of the accounting period. So, say on 31st March 2019, we are ending our accounting period. So, if we need to calculate the stalks there will be three types of stocks in our storeroom, one is stock of raw materials.
So, there will be some stock of P one p two p three p four at the End of our accounting period. So, there will be closing stock of raw material. So, we need to find out what is the units of each p one p two p three p four and the value of the same for the purpose of recording closing stock as on 31st March 2019. So, this is stock of raw material, then there will be stock of finished goods that does your easy's that will be stock of some atheists which are ready, but they are not yet sold. So, there will be some units of AC we have to record what is the quantity and the value of this a C's as on 31st March 2019. Now, there is one more there will be some stock or work in progress or Process goods that is on 31st March 2019, there will be some ACS, which are in the process of manufacturing.
That is they are neither completed, they're neither raw materials they are in the process of manufacturing. So, this stock needs to be valued as on 31st March 2019, and it needs to be recorded as stock of work in progress or stock of unprocessed food. So, for manufacturing concern, there will be three types of opening stock and closing stock, raw material, work in progress or Wi Fi or unprocessed good and stock of finished goods. Now, let's see what does the stock register stock register is a book that is maintained warehouse. So, it records inflow and outflow of all types of stock that does raw material, finished goods, spares, spares or the small stock like not bolts. So, whenever there is a purchase there will be an addition in the stock register, then when there is a sale to be reduced, the quantity of the stock will be reduced from the stock register.
Whenever there is a purchase return quantity of stock will be reduced from the stock register. Whenever there is a sales return quantity of stock will get added. So, usually at regular intervals or entity will do is it will conduct a physical stock verification wherein it will count the physical stock and match it with the quantity in the register though just to have a check, whether there is a loss of stock loss due to theft, this physical verification is generally carried out at regular intervals and at the end of the accounting period somewhere near to the end of the accounting period safe physical verification is done on hold April 2019 whereas, our accounting period it ends on 31st March 2019, then the first stop will be physically calculated. Then the whatever are the adjustments that is additions or there will be some purchases sales during this period they will be adjusted to arrive at physical stock on 31st March 2019.
And then it will be matched with the stock register. This was about What's the stock