Consumable Items in NPO Accounts: Stock, Purchases and Creditors

A club pays Rs. 60,000 for stationery during the year. Should you write Rs. 60,000 as stationery expense in its Income and Expenditure Account?

Not necessarily. Some of that payment may settle last year’s bill. Some stationery bought this year may still be sitting in a cupboard. And the club may have used materials for which it has not yet paid.

That is why these questions give you opening stock, closing stock and creditors. Each figure helps answer a different question.

Once you separate payment, purchase and consumption, the calculation becomes much easier. We will build it in two stages, work through the accounts, and then try the variations that usually cause confusion.

The quick answer: calculate purchases, then consumption

For an ordinary question with payments and creditors, use:

Purchases = Amount paid + Closing creditors - Opening creditors

Then:

Consumables used = Opening stock + Purchases - Closing stock

The cost used during the year goes on the expenditure side of the Income and Expenditure Account. Stock remaining at the end is an asset. Unpaid supplier balances are liabilities.

If advances to suppliers are also given, the first calculation becomes:

Purchases = Amount paid + Closing creditors - Opening creditors + Opening advances - Closing advances

These formulas assume the payment relates only to the relevant materials and there are no other supplier adjustments, such as discounts, returns or bills accepted. We will deal with that limitation below.

The consumption formula and supplier-account approach are also set out in DAV College’s teaching notes on non-profit accounts. The examples below use original figures so you can practise the reasoning afresh.

What counts as a consumable item?

Think of supplies that an organisation uses while carrying out its activities: paper and pens in a reading club, medicines in a charitable clinic, or materials used in sporting activities.

The question’s classification matters. A club’s printer or a durable exercise machine is usually equipment, not stationery or consumable sports material. You would not put the full cost of that equipment into this stock-consumption calculation simply because the organisation paid for it.

Here is a helpful way to picture the three amounts:

• Payment: money leaving the cash box or bank account.
• Purchase: materials acquired during the accounting year, whether paid for immediately or bought on credit.
• Consumption: the cost of materials used during that year.

A purchase can happen before payment. Consumption can happen after purchase. Your job is to put each event in the right place.

Why opening and closing stock have opposite signs

Imagine that your club begins the year with 20 packs of paper. It buys another 100 packs and finishes with 30 packs unused.

There were 120 packs available, but only 90 were used:

20 + 100 - 30 = 90 packs

The same movement works with values, provided the stock figures and purchases are measured on a consistent basis.

Opening stock is added because it was available to use this year, even though it was bought earlier. Closing stock is deducted because it remains available for later use.

Example 1: purchases are already given

A reading club gives you:

• Opening stationery stock: Rs. 4,800.
• Stationery purchases during the year: Rs. 28,600.
• Closing stationery stock: Rs. 6,200.

Stationery consumed = Rs. 4,800 + Rs. 28,600 - Rs. 6,200 = Rs. 27,200.

Show Rs. 27,200 as stationery consumed in the Income and Expenditure Account. Show Rs. 6,200 as stationery stock in the closing Balance Sheet.

There is no need to reconstruct purchases when a reliable total purchase figure is already supplied.

Why closing creditors are added and opening creditors deducted

Suppose the club begins the year owing a stationery supplier Rs. 9,000. It pays suppliers Rs. 60,000 during the year and still owes Rs. 14,000 at the end.

The supplier balance moves like this:

Opening creditors + Credit purchases = Payments to creditors + Closing creditors

Rearrange it:

Credit purchases = Rs. 60,000 + Rs. 14,000 - Rs. 9,000 = Rs. 65,000.

Opening creditors represent materials acquired before this year. Their payment should not be counted again as a current purchase. Closing creditors represent materials already acquired but still unpaid for at year-end.

This explanation assumes all purchases in the illustration are on credit and there are no other movements in the supplier account.

Example 2: the complete payment-to-consumption calculation

A youth club provides these details for the year ended 31 March 2027. All stationery purchases are on credit, and there are no advances or other supplier adjustments.

Particulars	1 April 2026	31 March 2027
Stationery stock	Rs. 12,000	Rs. 15,500
Creditors for stationery	Rs. 9,000	Rs. 14,000

Payment to stationery creditors during the year is Rs. 60,000.

Working note 1: stationery purchases

Rs. 60,000 + Rs. 14,000 - Rs. 9,000 = Rs. 65,000.

Working note 2: stationery consumed

Rs. 12,000 + Rs. 65,000 - Rs. 15,500 = Rs. 61,500.

The three answers are different for a reason:

• Cash paid is Rs. 60,000.
• Purchases are Rs. 65,000.
• Consumption is Rs. 61,500.

Purchases exceed payment by Rs. 5,000 because the amount owed to suppliers increased. Consumption is Rs. 3,500 below purchases because stock increased by that amount.

That is a useful reasonableness check before you move on.

The same example through ledger accounts

If the question asks for accounts, show both stages explicitly. All amounts in the following tables are in rupees.

Creditors for Stationery Account

Debit particulars	Amount	Credit particulars	Amount
To Bank A/c	60,000	By Balance b/d	9,000
To Balance c/d	14,000	By Stationery A/c: purchases	65,000
Total	74,000	Total	74,000

The Rs. 65,000 balancing figure is the purchase value. The closing creditors balance is carried down on the debit side to balance the account, then brought down on the credit side in the next year. It remains a liability.

Stationery Account

Debit particulars	Amount	Credit particulars	Amount
To Balance b/d	12,000	By Income and Expenditure A/c	61,500
To Creditors A/c	65,000	By Balance c/d	15,500
Total	77,000	Total	77,000

The Rs. 61,500 transfer represents the stationery used. The Rs. 15,500 closing balance represents what remains.

The transfer entry is:

Income and Expenditure A/c Dr. Rs. 61,500

To Stationery A/c Rs. 61,500

This entry assumes the organisation has used the separate Stationery Account illustrated above. Do not post another expense for the same consumption after making this transfer.

Where each figure appears in the final accounts

Using Example 2, the relevant extracts are:

Statement	Item	Amount
Receipts and Payments Account	Payment for stationery	Rs. 60,000
Income and Expenditure Account	Stationery consumed	Rs. 61,500
Closing Balance Sheet: assets	Stationery stock	Rs. 15,500
Closing Balance Sheet: liabilities	Stationery creditors	Rs. 14,000

These are extracts, not complete statements, so the Balance Sheet rows here are not expected to balance by themselves.

Notice that the creditors figure is not a second stationery expense. It helped you determine purchases and also tells you what the club still owes.

For a wider example showing how the statements fit together, see the complete club accounts project.

Example 3: medicines with advances to suppliers

An advance is money paid before the relevant supplies have been received. It therefore needs a separate adjustment.

An opening advance can pay for materials received this year without appearing in this year’s cash payments. Add it when reconstructing purchases. A closing advance is still waiting to become supplies at year-end. Deduct it.

A charitable clinic gives you:

• Payments to medicine suppliers during the year: Rs. 2,40,000.
• Opening creditors: Rs. 18,000; closing creditors: Rs. 26,000.
• Opening advances: Rs. 7,000; closing advances: Rs. 11,000.
• Opening medicine stock: Rs. 32,000; closing stock: Rs. 29,000.

Assume there are no refunds, discounts, returns or other supplier adjustments.

Step 1: calculate medicine purchases

Rs. 2,40,000 + Rs. 26,000 - Rs. 18,000 + Rs. 7,000 - Rs. 11,000 = Rs. 2,44,000.

Step 2: calculate medicines consumed

Rs. 32,000 + Rs. 2,44,000 - Rs. 29,000 = Rs. 2,47,000.

The Income and Expenditure Account includes medicines consumed of Rs. 2,47,000. The closing Balance Sheet includes medicine stock of Rs. 29,000 and advances to medicine suppliers of Rs. 11,000 as assets. Medicine creditors of Rs. 26,000 appear as a liability.

The stock and the advance are two separate assets. One represents supplies already held; the other represents a claim on a supplier for supplies still to come.

Example 4: cash purchases are listed separately

This variation depends on careful reading.

Suppose a sports club reports:

• Payments to creditors for sports materials: Rs. 42,000.
• Separate cash purchases of sports materials: Rs. 8,000.
• Opening creditors: Rs. 5,000; closing creditors: Rs. 7,000.
• Opening stock: Rs. 9,000; closing stock: Rs. 6,000.

There are no advances or other adjustments.

First reconstruct credit purchases:

Rs. 42,000 + Rs. 7,000 - Rs. 5,000 = Rs. 44,000.

Then include cash purchases:

Rs. 44,000 + Rs. 8,000 = Rs. 52,000 total purchases.

Finally calculate consumption:

Rs. 9,000 + Rs. 52,000 - Rs. 6,000 = Rs. 55,000.

If the question had instead supplied total payments for materials of Rs. 50,000, already including those cash purchases, you would use Rs. 50,000 + Rs. 7,000 - Rs. 5,000 to reach the same purchase total. You would not add Rs. 8,000 again.

Example 5: finding a missing payment

Sometimes consumption is given and payment is missing. Work backwards through the same two stages.

A club reports stationery consumed of Rs. 48,000, opening stock of Rs. 7,000 and closing stock of Rs. 10,000. Opening creditors are Rs. 6,000 and closing creditors are Rs. 8,500. There are no advances or other adjustments.

Purchases = Consumption + Closing stock - Opening stock

Rs. 48,000 + Rs. 10,000 - Rs. 7,000 = Rs. 51,000.

Payment = Purchases + Opening creditors - Closing creditors

Rs. 51,000 + Rs. 6,000 - Rs. 8,500 = Rs. 48,500.

Check it forwards:

Rs. 48,500 + Rs. 8,500 - Rs. 6,000 = Rs. 51,000 purchases.

Rs. 7,000 + Rs. 51,000 - Rs. 10,000 = Rs. 48,000 consumed.

Both stages return the figures in the question.

When the short formula needs extra working

The basic formula is a shortcut for an account reconciliation. If the question supplies other movements, return to the account.

For example, suppose opening creditors are Rs. 4,000, cash paid is Rs. 30,000, discount received is Rs. 1,000 and closing creditors are Rs. 6,000. With all purchases on credit and no other adjustments:

Credit purchases = Rs. 30,000 + Rs. 1,000 + Rs. 6,000 - Rs. 4,000 = Rs. 33,000.

Cash did not settle the whole reduction in the liability. The discount settled Rs. 1,000 of it. Under the traditional school ledger treatment, discount received is separately credited to income; it is not an extra cash payment.

Purchase returns, bills payable and supplier refunds also need their own entries when supplied. Reconstruct gross purchases if required, then deduct purchase returns to obtain net purchases for the stock calculation. Follow the accounting treatment specified in your question.

Similarly, if materials are specifically reported as destroyed or discarded and the question asks for normal consumption separately, distinguish that loss from ordinary use. Do not charge the same amount once as consumption and again as a separate loss.

The simple examples in this guide assume no such events unless stated.

Six mistakes you can catch before submitting

1. Using the payment as the expense. Check whether creditor, advance or stock balances change the amount.

2. Adding opening creditors. When moving from payments to purchases, opening creditors are deducted. They relate to earlier acquisitions.

3. Deducting closing creditors. Materials acquired but unpaid for still belong in purchases.

4. Adjusting purchases for creditors twice. If total purchases are already given, creditors ordinarily do not need to be used to reconstruct that same total.

5. Treating unused stock as an expense. Closing stock stays as an asset; it is excluded from current consumption.

6. Mixing unrelated balances. Use creditors for stationery when calculating stationery purchases. A combined creditor total that includes equipment suppliers cannot automatically be used without a breakdown.

Practise the calculation yourself

Unless stated otherwise, assume no advances, returns, discounts or other supplier adjustments. All figures are in rupees.

1. Opening stock is 3,000, purchases are 19,000 and closing stock is 4,500. Find consumption.
2. Total payments for materials are 36,000. Opening creditors are 4,000 and closing creditors are 7,000. Find purchases.
3. Use the purchases from Question 2. Opening stock is 6,000 and closing stock is 8,000. Find consumption.
4. Total payments are 90,000. Opening and closing creditors are 12,000 and 9,000. Opening and closing advances are 5,000 and 8,000. Find purchases.
5. Use the purchases from Question 4. Opening and closing stock are 14,000 and 11,000. Find consumption.
6. Consumption is 72,000, opening stock is 8,000 and closing stock is 13,000. Find purchases.
7. Use purchases from Question 6. Opening creditors are 10,000 and closing creditors are 15,000. Find total payments.
8. A question directly states total purchases of 40,000, opening stock of 5,000 and closing stock of 7,000. It also lists creditors. Do you need creditors to find consumption?

Answers with short workings

1. 17,500: 3,000 + 19,000 - 4,500.
2. 39,000: 36,000 + 7,000 - 4,000.
3. 37,000: 6,000 + 39,000 - 8,000.
4. 84,000: 90,000 + 9,000 - 12,000 + 5,000 - 8,000.
5. 87,000: 14,000 + 84,000 - 11,000.
6. 77,000: 72,000 + 13,000 - 8,000.
7. 72,000: 77,000 + 10,000 - 15,000.
8. No. Consumption is 38,000: 5,000 + 40,000 - 7,000. Purchases have already been supplied.

For another published practice question, try Question 4 in the Delhi Directorate of Education accountancy practice paper. It provides payments, stationery stock and creditor balances, making it a useful check of the two-stage method.

Frequently asked questions

What is the formula for consumable items in NPO accounts?

Consumption equals opening stock plus purchases during the year minus closing stock. If payments are given instead of purchases, first adjust for the relevant creditors and supplier advances.

Why do we deduct opening creditors from payments?

The opening liability relates to materials acquired before the current year. Deducting it, while also adding the closing liability, converts the cash figure into the current year’s purchases under the ordinary assumptions.

Why is closing stock deducted from purchases plus opening stock?

Those materials are still held at year-end. They have not yet been used, so they remain an asset rather than becoming part of the year’s consumption expense.

Where is closing stock of stationery shown?

It appears on the assets side of the closing Balance Sheet. Its value is also deducted in the working note that calculates stationery consumed.

Can consumption be greater than the amount paid?

Yes. In Example 2, the club pays Rs. 60,000 but consumes Rs. 61,500. Changes in supplier balances and stock explain the difference.

What happens if purchases are already given?

Use those purchases directly in the stock formula. Do not apply the payment-to-purchases adjustment again unless the question indicates that the figure is incomplete or needs a specific correction.

How are advances to medicine suppliers treated?

Add opening advances and deduct closing advances when reconstructing purchases from payments, assuming no other supplier movements. Closing advances appear as an asset, separately from medicines held in stock.

Are sports materials and sports equipment always treated alike?

No. Read how the question classifies each item. Consumable materials belong in the consumption working; durable equipment normally needs asset treatment and any applicable depreciation.

Must I prepare ledger accounts for every question?

Prepare them when asked. Otherwise, clear working notes are often sufficient. The accounts are especially helpful when there are extra movements or a missing figure.

What is the quickest way to check my signs?

Ask two questions: did the amount owed to suppliers increase, and did unused stock increase? With other factors unchanged, higher creditors make purchases exceed payments; higher stock makes consumption lower than purchases. Use that reasoning to check your answer.