How to Calculate Beginning Inventory & Ending Inventory

Calculating inventory can be done in a few steps.

Beginning and ending inventory figures are used to determine the cost of goods sold for a particular period. During any period, products are purchased, counted and placed into an inventory account. When products are sold, the items are removed from inventory and income is recognized. Products also must be removed from inventory when damaged or transferred to a work-in-process account, as is customary for manufacturing companies. A physical count is necessary to ensure the accuracy of the inventory account balance.

Things You'll Need

• Inventory records
• Account ledger
• Calculator

Instructions

1. Transfer the ending inventory from the previous period into the beginning inventory account for the current period, or take a manual inventory count at the beginning of the period.

2. Add all inventory purchases made during the period to the total.

3. Subtract inventory sold, transferred to a work-in-process account, or damaged from the total.

4. Record ending inventory in the account ledger. Perform a physical count for accuracy. Record any differences in an inventory over/short account.

References

• "Intermediate Accounting"; Spiceland et al; 2005