Cost of Sales                        DR

Opening Inventory                          CR

(To record opening inventory brought forward from previous year)

Closing Inventory               DR

Cost of Sales                                     CR

(To record closing inventory carried forward from to next year)

Cost of Sales                        DR

Purchases                                         CR

(To close purchases to cost of sales account)

Cost of Sales

Cross-title Debit Cross-title Credit
Opening Inventory b/f xxx Closing Inventory c/f xxx
Purchases during the year xxx Cost of Sales (profit or loss) xxx
  xxx   xxx

Cost of sales account is opened for calculating cost of sales. Cost of sales is not a part of double entry bookkeeping. Each year new account is opened as charges in the income statement or COSI cannot be carried forward. Only balances shown in SFP can be carried forward.

Closing inventory balance is obtained by using inventory valuation methods or cost formula as follows:


click to enlarge

Freight or carriage inwards is included in delivery cost. Freight or carriage outwards is not included in delivery of inventory rather it is selling and distribution cost of organization.

Cash discounts obtained due to early cash payment should not be deducted from cost of inventory. It is finance cost to the organization.

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