Closing inventory is the value of the goods or stock you still have at the end of the accounting period (e.g., year-end). It’s what’s left unsold. 

Where is it shown in the financial statements? 

Two places: 

1- Balance Sheet (Asset side): 

Because it's something the business owns (unsold stock), it goes under current assets. 

2- Income Statement (as a reduction in cost): It helps calculate the Cost of Goods Sold (COGS). So, it reduces expenses, which increases your profit. 

Example: Opening inventory: $5,000 Purchases during the year: $15,000 Closing inventory: $4,000 

Sales: $30,000 

COGS = Opening Inventory + Purchases - Closing Inventory COGS = $5,000 + $15,000 - $4,000 = $16,000

 So, your gross profit will be: Sales - COGS = $30,000 - $16,000 = $14,000

Double Entry for Closing Inventory: 

When we record closing inventory at year-end, we do this: Debit (Dr): Closing Inventory (Current Asset account in Balance sheet) Credit (Cr): Closing Inventory (COGS adjustment in Profit and Loss Account) This credit reduces the cost in the income statement and shows the asset in the balance sheet.