Ending Inventory 101: Formula & Free Calculator

ABC company had 200 items on 7/31, which is the ending inventory count for July as well as the beginning inventory count for August. As of 8/31, ABC Company completed another count and determined they now have 300 items in ending inventory. This means that 700 items were sold in the month of August (200 beginning inventory + 800 new purchases ending inventory). Alternatively, ABC Company could have backed into the ending inventory figure rather than completing a count if they had known that 700 items were sold in the month of August. First in, first out (FIFO) assumes that the oldest items purchased by the company were used in the production of the goods that were sold earliest. Under FIFO, the cost of the oldest items purchased are allocated first to COGS, while the cost of more recent purchases are allocated to ending inventory—which is still on hand at the end of the period.

Advancements in inventory management software, RFID systems, and other technologies leveraging connected devices and platforms can ease the inventory count challenge. Ending inventory is the inventory left over at the end of an accounting period. When you know the ending inventory, you can determine the cost of goods sold (COGS) as well as your ending inventory balance for your balance sheet. This way, you can get an accurate picture of your net income and make decisions based on accurate inventory counts. One method for calculating ending inventory is by conducting a physical count of the quantity of each item in inventory. This involves physically counting the items and then multiplying the quantities by their respective unit costs.

When valuing ending inventory, it is important to consider the lower of cost or market rule. This rule states that inventory should be valued at the lower of its acquisition cost or market value minus any selling costs. To calculate the cost of goods sold, you need to know the total cost of the items sold during the accounting period.

Say you bought 10 hoodies at \$20 in January, then 10 of the same hoodies at \$25 in February. Your approach to inventory calculations can have a big impact on ending inventory, and therefore your bottom line. Deskera is hence your go-to solution for all your business financial reports and more. It will become your guide, mentor, and assistant to help you avoid mistakes and save you money. Tasks like Invoice generation, invoice reminders, and integration of functions, inventory, tax calculations, and payments due and receivable can also be brought together in one place. One of the most challenging parts of forecasting is determining how much inventory you need for the future.

Ending inventory is the value of goods still available for sale and held by a company at the end of an accounting period. The dollar amount of ending inventory can be calculated using multiple valuation methods. Although the physical number of units in ending inventory is the same under any method, the dollar value of ending inventory is affected by the inventory valuation method chosen by management. At its most basic level, ending inventory can be calculated by adding new purchases to beginning inventory, then subtracting the cost of goods sold (COGS). A physical count of inventory can lead to more accurate ending inventory.

If the numbers don’t match up, this could be a sign that you’re paying too much for the initial purchase of goods based on current market value, or that it’s time to rethink your pricing strategy. Ending inventory refers to the sellable inventory you have left over at the end of an accounting period. When a given accounting period ends, you take your beginning inventory, add net purchases, and subtract the cost of goods sold (COGS) to find your ending inventory’s value. For a balance sheet to be complete, you’ll need to claim all inventory as an asset.

ShipBob offers outsourced fulfillment and a WMS if you have your own warehouse. Request a quote by filling out the form.

This average cost is then used to assign costs to both the cost of goods sold and the ending inventory. You may be rolling over products as part of a continuous supply, or you may have a stock out of product. Whatever the reason, you must have a method in place to help you determine how much to order. Trying to add up all your sales from now until the end of time can be overwhelming and time-consuming, but it doesn’t have to be that way.

1. Here are three different ways to approach your calculations for ending inventory.
2. Advancements in inventory management software, RFID systems, and other technologies leveraging connected devices and platforms can ease the inventory count challenge.
3. This figure can fluctuate from period to period, depending on sales levels and changes in pricing policies during those periods.
4. The value of ending inventory can be calculated using different methods, such as the first in, first out (FIFO), last in, first out (LIFO), and weighted-average cost methods.
5. The methods we’ve outlined today can give you a reasonably accurate estimate of ending inventory, helping you determine your cost of goods sold and inventory balance for your balance sheet.

Besides the method explained above, there are other methods for calculating the ending inventory value. You can also access both of them by setting “no” in the Is the value of COGS known? Even though high values are preferable, they may signal that the inventory levels are low during the month, which can cause difficulties with providing your product accounting business management and tax news to customers on a short notice. Deskera Books will make accounting faster, more efficient, and real-time. Deskera books will also ensure that your business follows the RITE framework of accounting, which will save it money. You can have access to Deskera’s ready-made Profit and Loss Statement, Balance Sheet, and other financial reports instantly.