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Chapter 4

As the preparation of the statement of profit or loss continues, it will be necessary to
determine the value of inventory at the end of the accounting period. This is often
done by referring to a separate inventory control system, which is maintained outside
the bookkeeping system (you will learn more about the valuation of inventory later in
this publication).

If the entity in our illustration had inventory at 31 May with a value of $1,200, it is
recorded in the nominal ledger as follows:

Debit Inventory $1,200, and Credit Statement of profit or loss $1,200

The inventory account will then be as follows:
Inventory
Dr $ Cr $
Statement of
01-May Balance b/d Nil 31 May profit or loss Nil
Statement of
31 May profit or loss 1,200

In effect, the inventory account now has a debit (asset) balance to include in the
statement of financial position as at 31 May.

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