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TL;DR: Opening stock is the inventory you start an accounting period with, while closing stock is what remains at the end. Together, they directly affect COGS, profit, and balance sheet accuracy for manufacturing businesses.
At any given time, manufacturers handle purchasing, production, inventory, and accounting in parallel. Opening and closing stock act as the bridge between these operations and financial reporting.
Understanding the difference between opening stock and closing stock helps Indian SME manufacturers calculate profits correctly and avoid reporting errors.
What Is Opening Stock?
Opening stock is the inventory available at the start of an accounting period.
It is always carried forward from the previous period’s closing stock and forms the starting point for COGS calculation.
What opening stock includes
Raw materials
Work-in-progress (WIP)
Finished goods
Opening stock formula
Opening stock is part of the COGS equation:
Cost of Goods Sold = Opening Stock + Purchases − Closing Stock
Example of opening stock
A machinery manufacturer may start the year with raw materials, partially assembled machines, and finished units already in storage. The total value of these items is the opening stock.
What Is Closing Stock?
Closing stock is the unsold inventory at the end of an accounting period.
It includes raw materials, WIP, and finished goods that remain after sales and production consumption.
Closing stock reduces COGS and directly impacts gross and net profit.
Common methods to calculate closing stock
FIFO (First-In, First-Out)
LIFO (Last-In, First-Out)
Average cost method
Gross profit method
Closing stock formula
Cost of Goods Sold = Opening Stock + Purchases − Closing Stock
Example of closing stock
If 80 units are produced in a month and 60 are sold, the remaining 20 units represent the closing stock for that period.
Difference Between Opening Stock and Closing Stock
Opening stock represents the start point, while closing stock represents the end point of inventory in an accounting cycle.
Criteria | Opening Stock | Closing Stock |
|---|---|---|
Definition | Inventory at the beginning of the period | Inventory remaining at the end of the period |
Timing | Reported at period start | Reported at period end |
Accounting role | Carried from previous period | Carried forward as a current asset |
Impact on COGS | Increases COGS | Reduces COGS |
Balance sheet | Not shown separately | Shown as a current asset |
Valuation | No fresh valuation | Valued using FIFO, LIFO, or average cost |
Impact of Opening and Closing Stock on Financial Statements
Changes in opening and closing stock directly affect reported profits and asset values.
Trial balance
Opening and closing inventory values help determine COGS for the accounting period.
Profit and loss account
Opening stock is added to purchases, and closing stock is subtracted to calculate gross profit.
Balance sheet
Closing stock appears as a current asset, while opening stock reflects the previous period’s closing balance.
Recording Opening and Closing Stock Accurately
Accurate stock records prevent profit distortion and operational blind spots.
Incorrect inventory values can lead to overstated profits, excess carrying costs, or stock shortages.
Manufacturers benefit from systems that track stock movement consistently across purchases, production, and sales while ensuring accounting accuracy.
FAQs
What is opening stock and closing stock in accounting?
Opening stock is inventory at the start of an accounting period, while closing stock is inventory remaining at the end. Both are essential for calculating COGS.
How is closing stock calculated?
Closing stock is calculated using the formula: Opening Stock + Purchases − Cost of Goods Sold.
What happens if opening stock is less than closing stock?
When closing stock is higher, reported profits differ depending on the costing method used, such as absorption or marginal costing.
Does opening or closing stock appear on the balance sheet?
Only closing stock appears on the balance sheet as a current asset.
Can opening stock and closing stock be the same?
They can be the same only if no inventory movement occurred during the period, which is rare in manufacturing.
