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Closing inventory appears on the balance sheet as an asset. In some countries inventory is referred to as ‘stock’.
For example, at the end of first year, a business starts and has purchased goods costing $23,000, and has made sales totaling $28,000. Goods which cost the business $25,00 have not been sold by the end of the year. What profit has the business in the year?
The goods not sold are referred to as closing inventory. It is deducted from purchases in the income statement. Gross profit is:
Sales revenue $28,000
Purchase $23,000
Less: Closing inventroy $25,00
Cost of sales $20,500
Gross profit $7,500
For more than one year, the inventory will be more complicated, now let’s see another example:
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