How to Calculate Closing Inventory

Determining ending inventory

Closing inventory, also known as ending inventory, is a company's inventory at the end of a period. Inventory is defined as items that a company has on hand for sale to consumers. Determining inventory helps companies calculate expenses. One of the most prominent expenses on a company's income statement is "cost of goods sold": beginning inventory, plus purchases, minus ending inventory.

Instructions

1. First determine the company's cost of goods sold by documenting beginning inventory and purchases for the period. For example, at the beginning of a month, a firm might have $500,000 of beginning inventory, plus $200,000 of additional inventory, while having a cost of goods sold of $400,000 for the month.

2. Write out a formula by substituting the values determined in Step 1. The formula for determining ending inventory is "beginning inventory plus purchases minus cost of goods sold." Using the example given, it would be written as $500,000 plus $200,000 minus $400,000.

3. Solve the formula. In the example, ending inventory equals $300,000.

References

• Understanding Accounting: Inventory and Costs of Goods Sold
• Accounting Coach: Inventory and Cost of Goods Sold