What is closing stock?
Closing stock is the Inventory that a business still has on hand, at the end of a reporting period.
- Typically, in a manufacturing unit, the stock held may be in the form of Raw material or material on which work is in process (WIP) or finished goods inventory.
- In a trading unit, the stock held is known as Traded goods. There are goods that are bought and sold 'as it is' without any additional activity or modification. There is no activity and consequently no change in form that's applicable for a manufactured item.
Verification
Quantity of closing stock held can be physically verified with a physical count of the inventory or perpetual inventory system.
While the traditional inventory counting involves halting the factory Operations for 3-4 days for a full count of inventory held in the factory, perpetual inventory taking through cycle counting method targets sections of inventory on a rotating schedule basis and adjusting the inventory records to for deviations if any, to arrive at ending balance.
Significance:
Value of closing stock is significant element in calculation of COGS in a periodic inventory system, COGS which is equal to Opening stock + Purchases - Closing stock, represents the cost of goods sold during the period.
We will discuss in detail about closing stock valuation and physical inventory taking process in subsequent articles.