Final answer:
Closing inventory is displayed on the Statement of Financial Position under the section of current assets, reflecting the unsold goods at the end of the fiscal period and affecting both the balance sheet and the income statement.
Step-by-step explanation:
The closing inventory appears on the Statement of Financial Position (SFP), specifically under the section of current assets. The SFP, also known as the balance sheet, is an essential financial statement that reflects a company's financial condition at a specific point in time. The closing inventory represents the unsold goods that a company has at the end of the fiscal period. This inventory has not yet sold, thus it is considered an asset because it represents future economic benefits to the company.
Current assets are assets that are expected to be converted into cash within one year or one operating cycle, whichever is longer. Since inventory is expected to be sold within this timeframe, it falls under this category. In preparing the SFP, the amount of closing inventory is usually determined by a physical count or estimation, and the value is included under current assets, often after receivables and before prepaid expenses.
Recognizing closing inventory on the SFP is crucial because it affects both the balance of assets and the cost of goods sold on the income statement. An accurate representation of closing inventory is required to ensure reliable financial reporting.