Acca financial Accounting (FA) Study Text ac ca (FA)

Calculate the gross profit for the year ended 31 December 20X7. 

3 Year-end 

inventory 

adjustments 

At the end of the year two basic adjustments are required to recognise opening 

and closing inventories in the correct place: 

1 

Inventory brought forward from the previous year is assumed to have been 

used to generate assets for sale. It must be removed from inventory 

assets and recognised as an expense in the year 

Dr Opening inventory in cost of sales 

Cr Inventory assets 

 

 

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Chapter 6 

KAPLAN PUBLISHING

 

97 

2 

The unused inventory at the end of the year is removed from purchase 

costs and carried forward as an asset into the next year: 

Dr Inventory assets 

Cr Closing inventory in cost of sales 

When these entries have been completed, the cost of sales account contains 

both opening and closing inventory and the inventory ledger account shows the 

closing inventory for the asset remaining at the end of the year.