Adjusting Entry for Closing Stock or Ending Inventory

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 02, 2023

At the end of the trading period, some merchandise purchased earlier in the year may not have been sold, and are still on hand.

The stock in hand at the end of the trading period is known as closing stock or ending inventory.

The closing stock should be evaluated carefully because the amount of closing stock or ending inventory materially affects the trading results of the business.

In order to ensure that the income statement is correct, we must consider the value of the closing inventory of merchandise.

The value of merchandise remaining unsold at the end of the trading period represents an asset of the business.


Suppose that a firm's unsold stock at the end of the year is valued at $20,000.

Accounting Treatment

The unsold stock has the following aspects:

  • Firstly, the unsold stock is left out of the opening stock and purchases that have already been recorded on the debit side of the trading account.

    Therefore, to match the cost price and sales revenue of the same number of units, the unsold stock is recorded on the credit side of the trading account.

Effect on Financial Statement

The amount of closing merchandise inventory is deducted from the cost of goods available for sale in the income statement.

Also, the same amount is recorded as a current asset in the balance sheet. This adjustment affects the income statement and balance sheet as follows:

Adjusting Entry

Adjusting Entry for Closing Stock or Ending Inventory
Adjusting Entry for Trading Account
Adjusting Entry for Balance Sheet

Adjusting Entry for Closing Stock or Ending Inventory FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.