How to, Getting started

    How to calculate beginning inventory (Clone)

    BY TradeGecko 23 October 2017

    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.

    beginning-inventory-calculation.png

    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

     

    What's the difference between Xero and TradeGecko inventory management?

    Start my free trial now

    Get notified on new webinars and events!

    Unsubscribe anytime

    Subscribe for insights into building world-class eCommerce companies