Glossary · Also called Closing stock
Closing inventory
The value of unsold goods a business still holds at the end of a period.
What it means
The value of inventory on hand at the reporting date, deducted in the cost of sales calculation and shown as a current asset.
Example
Unsold goods worth RM7,000 at year end are the closing inventory.
Why it matters
It is deducted in cost of sales and appears as a current asset, so it affects both profit and the statement of financial position.
In practice
Closing inventory is deducted in the cost of sales calculation in the trading section of the income statement. It also appears as a current asset in the statement of financial position. So the same figure is used in both statements. In the ledger it is brought in by debiting the inventory account and crediting the income statement at the period end.
For example, a business counts unsold goods worth RM3,500 on the last day. That RM3,500 is subtracted from the cost of goods available for sale and shown as an asset.
Students often confuse it with opening inventory, which is added, not deducted. They are the same idea measured at different moments. This year's closing inventory becomes next year's opening inventory. Closing inventory must be valued at the lower of cost and net realisable value. Overstating it would inflate this year's gross profit and overstate current assets.
If you are unsure why the same figure appears in two places, one of our teachers can trace it through a full set of accounts with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 4.5 Valuation of inventory (page 15).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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