How to Calculate Ending Inventory

Ending inventory measures the value of goods, inputs or materials available to either use or sell at the end of an inventory accounting period. A business uses ending inventory to forecast sales, analyze pricing schemes and determine whether it needs to buy more goods or fewer goods based on current usage.

Things You'll Need

• Starting inventory
• New purchases
• Cost of goods sold

Instructions

Determining Ending Inventory

1. Ending inventory can be determined by plugging the appropriate values into the following formula:

   Beginning inventory + net purchases - cost of goods sold (CoGS) = ending inventory

   This formula can be rearranged to calculate cost of goods sold, net purchases or beginning inventory.

2. Beginning inventory is the inventory available at the start of the fiscal year.

3. Purchases are the new inventory purchases made within the year.

4. The cost of goods sold is the total value of inventory (the cost) sold by the company during the period. This amount includes the direct cost of the materials used in production as well as the direct labor costs used to produce the good. Not included are distribution costs and sales force costs.

Tips & Warnings

• As most businesses have different prices for each item of inventory, inventory valuation is an important part of determining the ending inventory. The three different inventory-valuation methods are FIFO (first-in, first out), LIFO (last in, first out) and average cost.

References

• Investopedia's definition of "ending inventory"
• Accounting Coach: Inventory and cost of goods sold

Resources

• How to Calculate Cost of Goods Sold (CoGS)