FAF3
Syllabus D. Recording Transactions And Events D3. Inventory

D3b. Opening and closing inventory 2 / 10

Syllabus D3b)

Record opening and closing inventory.

Inventory is generally accounted for as a year end adjustment via a journal entry.

Opening Inventories

These are the goods held by the business at the beginning of the year. 

However, such goods will normally have been sold during the year. 

They are no longer an asset of the entity but will form part of the costs that should be matched against sales revenue when determining profit.

Therefore, opening inventories brought forward in the inventory account are transferred to the trading account. 

The accounting entry is:

Dr Cost of sales (I/S)
Cr Inventories (SOFP)

Closing Inventories

Goods might be unsold at the end of an accounting period and so still be held in inventory. 

The value of closing inventories is accounted for in the nominal ledger by debiting an inventory account and crediting the trading account at the end of an accounting period. 

Inventory will therefore have a debit balance at the end of a period, and this balance will be shown in the statement of financial position as a current asset.

The accounting entry is:

Dr Inventories (SOFP)
Cr Cost of sales (I/S)