What is the double entry for accounting for closing inventory?

In accounting, closing inventory must be recognized correctly to ensure that financial statements accurately reflect the business's performance and position. The correct double entry involves increasing the inventory account on the Statement of Financial Position (SFP) and decreasing the Cost of Goods Sold (SPL).

When inventory is accounted for as closing inventory, it is recorded on the SFP to show the assets the company has at the end of the accounting period. This is essential because the closing inventory figure will impact the Cost of Goods Sold on the income statement. By debiting the inventory account, you are acknowledging that the company still possesses this inventory.

On the other side of the ledger, you would credit the Cost of Goods Sold to adjust for this inventory that has not been sold during the period. This reflects the matching principle in accounting, where expenses are matched with revenues they help generate. In this case, the closing inventory should not be included in the Cost of Goods Sold calculation, as it represents unsold items. Thus, by correctly recording these entries, the financial statements present a clear and accurate picture of the company's financial health.

Therefore, the entry of debiting Inventory on the Statement of Financial Position while crediting the Inventory against the Cost of Goods Sold is the appropriate way to account