The most basic pattern is that of a system

Input - Process - Output

In its simplest form this is represented as an equation


Closing balance equals the opening balance plus additions less subtraction.

Example - Bank Balance

CB = OB + Deposits - Withdrawals

So by way of an example. Assume you had $100 in your bank at the beginning of the year. You deposited $50 in the account and withdrew $30. What is your closing Balance?

CB = 100+50-30

CB = 120

This is a reoccurring pattern in accounting. Other Examples include:


In the case of Inventory, the inventory we have on hand at the end of the period (CB) will be what we had on hand at the start of the year (OB) plus the inventory that we purchased throughout the year (Purchases) less inventory that we sold during the year (COGS - Cost of Goods Sold).

CB = OB + Purchases - COGS (Cost of Goods Sold). Inventory is an example of when we will need to reorganise the equation. When using the periodic inventory system we know the opening balance and we know the purchases. We also know the closing balance . We know the closing balance when we do a physical count of the stock (a stocktake).

So our equation of CB = OB + Purchases - COGS needs to be rearranged.

Add COGS to both sides and deduct CB from both sides and we have

COGS = OB + Purchases - CB