How to Calculate Beginning Inventory

Running a business gives you certain financial freedoms, but it comes with much hard work. Keeping good records is a must or you could end up in trouble with the IRS. When you are ready to begin your business you must start off with a beginning inventory. This is a record of all the products your business is starting off with so that you can keep track throughout the year of which products were sold and which ones you have left over.

Difficulty:

Moderate

Instructions

Things You'll Need

• Computer
• Software program
• Inventory sheets
• Calculator
• Pencil or pen

1. Figure out how you want to take inventory. Most inventory today is done on a computer with a special software program. That doesn't mean you can't do it manually if you want to. In fact it is helpful to do a combination of both. You may want to record everything on paper first and then go transfer it to your computer program. This is because it would be difficult to carry your computer around with you in the stock room while you are trying to figure out how much of a product you have.

2. Take down (write out) every product you have and how many you have of each. If you sold musical instruments you would take down that you had 15 drum sets and 20 flutes. You will want to be more specific than that, however, listing each drum set by brand name and how many you have of each.

3. Write out each product code. This is especially important when using a computer program so you can keep track of each individual product and whether it sold. Each product will come with a code on a receipt when you buy it. If you can't find it you can use the code on the UPC section of the box. It may take some time to input your beginning inventory in to your new computer system, but maintaining it won't be so tedious.

4. Write down the cost of the product. This is the cost that you bought the product for. If each drum set cost you $299.00 than you are going to write $299.00 times the 15 drum sets you have. Your total cost would be $4,485.00.

5. Write out the price you are going to sell the product for. This is important to do so that you don't have to go back and add information in your computer later on. Just get it all in there at once. If you bought a drum for $299.00 and you want to sell it for $500.00 than you would list $500.00 as the selling price.

6. Once you have written down all the products you have for sale you can tally up your columns. If you have a computer software program it will do this for you. Just get out your calculator and add up the column that lists what you paid for each product and the column that lists what your selling prices are going to be. You can also tally up how many products you have for sale in all. This is your beginning inventory.

Tips & Warnings

• Staples has some great computer programs for keeping track of your inventory. They also sell manual sheets if you want to do your inventory by hand.

• Have an accountant look over everything to make sure you have all the information they will need when it comes tax time.