Role of closing and opening inventory



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Sir Why do we show Closing and opening inventory in Income statement?I mean the stock which is sold off should only be shown because at the end of the day that is only the Revenue which you are going to make.Is it so that we have to show true value of our inventory which is left so that the accounts can be presented in a true and fair manner.

1 Answer(s)


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When inventory is used to make a product that expense is recorded under the COGS.

However, there are instances when inventory level changes other than when used to make the company's products. Inventory could have been damaged, stolen, gone bad, expired etc. When such a thing happens you will have to reduce your inventory item on the balance sheet by a proportional amount. When you reduce inventory on the balance sheet you need to reduce a corresponding expense account on the income statement. This account is typically called the "decrease and increase in inventory"