What Is Closing Stock?
Walk the aisles of any shop on 31 March and you are looking at a number for the books.
Closing stock is the value of the goods you still hold when a period ends. It sits on the asset side of your balance sheet. Subtract it from opening stock plus purchases and you have cost of goods sold.
That figure opens the next period, so get the year-end closing wrong and you start the next year wrong too.
How the Closing Figure Is Worked Out
The route depends on how you keep stock. If your billing system deducts each item as it sells, the books carry a running figure:
Closing Stock = Opening Stock + Purchases – Cost of Goods Sold
Count anyway. A count lower than the books is inventory shrinkage; a higher one usually means a delivery was never entered. If you only count at the period end, which most small shops do, the count comes first and cost of goods sold is worked back from it.
Closing Stock vs Opening Stock
Closing and opening stock are the same goods seen from two sides of a date.
| Aspect | Opening | Closing |
|---|---|---|
| Date | First day of the period | Last day of the period |
| Role | Starts the cost calculation | Ends it, and starts the next |
| Books | Debited to the trading account | Credited there, then an asset |
| Counted | Carried from last period | Counted and valued afresh |
Change the closing figure and next year’s opening changes too, which is why auditors check both ends.
Closing Stock Example
A supermarket in Shivamogga closes its year on 31 March 2027. Its books show the following, before the valuation check.
| Item | Amount |
|---|---|
| Opening stock, 1 April 2026 | Rs.8,65,000 |
| Purchases during the year | Rs.52,60,000 |
| Cost of goods sold | Rs.49,15,000 |
| Closing stock | Rs.12,10,000 |
Then AS 2 bites: stock is carried at the lower of cost and what it will fetch. A lot of cooking oil near its best-before date cost Rs.26,700, would sell for about Rs.19,000 after a markdown, and Rs.1,650 of that goes on delivery. That leaves Rs.17,350, so closing stock falls by Rs.9,350 to Rs.12,00,650 and cost of goods sold rises to Rs.49,24,350.
Note: this is an invented example for illustration only. The supermarket and all figures are made up.
Why the Valuation Rule Can Cut Your Profit
Your stock is not carried at whatever you paid for it.
Under AS 2, one of ICAI’s accounting standards, inventory is valued at the lower of cost and net realisable value. That value is the price you expect in the ordinary course of business, less what it costs to complete and sell the goods. Companies on Ind AS follow the same rule.
Raw materials are an exception: they are not written down while the dish or product they go into still sells at or above cost.
So a cost figure is a ceiling, not an answer. Three kinds of line usually have to come down to what they will fetch:
- Stock at or near its expiry date
- Last season’s range
- Anything a newer model has replaced
That write-down comes straight off the year’s profit, in the year you spot it rather than the year you finally clear the goods, which is how a year that looked fine turns thin by the time the accounts are signed. Across the stores we work with at Petpooja, this step waits for the auditor.
A lower closing figure raises your cost of goods sold, so the profit and loss report moves when the valuation changes. Our profit margin calculator shows the effect on margin.
Check Your Stock Records Before 31 March
A year-end figure is only as good as the records behind it.
For retail businesses, Petpooja Invoice offers centralised inventory management with real-time stock tracking. It also carries batch and expiry tracking, so you can see which lines are near their date before you value them.
For restaurants, Petpooja POSS puts inventory on item-wise auto deduction with day-end inventory reports. This guide to restaurant accounting shows where the closing figure sits at month end.
First count? Our inventory audit checklist sets out the order of work.
Open your stock list and mark what you would not sell today at full price.
Frequently Asked Questions
An asset. It appears under current assets on the balance sheet. What becomes an expense is the stock you sold during the year, plus any write-down to net realisable value.
Under a periodic system, nowhere. It is worked out after the trial balance is drawn, so it comes in as an adjustment and then shows in the trading account and the balance sheet. A perpetual system does carry a stock account that sits in the trial balance.
Not above cost, no. The rule is the lower of cost and net realisable value, so a rise in market price does not let you carry stock above what it cost. If you wrote a line down last year and the reason has gone, you can reverse that write-down, but only back up to the original cost.
Trust the count and find out why. If the count is lower than the books, the difference is shrinkage, and it points at theft, damage or wrong entries. If it is higher, something usually came in without being recorded.
