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Inventory

Year-end adjustments for inventory

At the end of the year two basic adjustments are required to recognise opening and
closing inventory correctly in the financial statements.

Opening inventory

Inventory brought forward from the previous accounting period is assumed to have
been sold during the current accounting period. It must be removed from inventory
and recognised as an expense in the current accounting period as follows:

Debit Opening inventory in cost of sales (SP&L)

Credit Inventory (SOFP)

Closing inventory

The unsold inventory at the end of the accounting period is removed from cost of
sales and carried forward as an asset into the following accounting period as follows:

Debit Inventory (SOFP)

Credit Closing inventory in cost of sales (SP&L)

Illustrations and further practice

Now try questions TYU 2 and TYU 3 from Chapter 6 of the Study Text.

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