How to calculate beginning inventory

Beginning inventory is the dollar value of all inventory held by a business at the start of an accounting period, and represents all the goods a business can put toward generating revenue for that period. You can use the beginning inventory formula to better understand the value of your inventory at the start of a new accounting period.

Streamline your inventory and order management processes today.

Click here to start your FREE trial now.


How to calculate beginning inventory

  1. Determine the cost of goods sold (COGS) using your previous accounting period’s records.

    Example: Candles cost $2 each to produce, and Jen’s Candles sold 600 candles during the year.

    COGS = 600 x $2 = $1200 

  2. Use your accounting records to calculate your ending inventory balance and the amount of new inventory purchased or produced during the period.

    Example: Jen’s Candles had 800 candles in stock at the end of the previous accounting period, and produced a further 1000 candles during the next year.

    Ending inventory = 800 x $2 = $1600

    New inventory = 1000 x $2 = $2000

  3. Add the ending inventory and cost of goods sold.

    Example: $1600 + $1200 = $2800

  4. To calculate beginning inventory, subtract the amount of inventory purchased from your result.

    Example: $2800 - $2000 = $800

    So, in this case, the beginning inventory value for Jen’s Candles is $800.

Why is beginning inventory useful?

Any change to beginning inventory compared with the previous period usually signals a shift in the business. For instance, decreasing beginning inventory could be a result of growing sales during the period, or it could be due to an issue in the supply chain or inventory management process. Increased beginning inventory could be due to a business ramping up stock before a busy period, or it could signal a downward trend in sales.

As with all business accounting, beginning inventory is a good way to better understand sales and operational trends for a business and make improvements to the business model based on the available data. 

Help grow your business with smart inventory management. Start a free 14-day TradeGecko trial today.


See also:

Calculating your wholesale price

Calculating the real Cost of Goods Sold

How to create SKU codes: Free SKU Generator

Are you looking for an effortless inventory management solution?

Save time and money by signing up for a free trial of TradeGecko today!

Start my free trial now