In many ways, inventory management is the life blood of a successful business. This is why it's important for business owners to be able to calculate the value of inventories at the beginning of the month and at the end of the month. It is also important to know how to determine the value of inventory purchases in order to calculate the cost of inventory sold (also known as cost of goods sold) over a given time period.
Determine your beginning inventory. Beginning inventory is the value of inventory at the beginning of the time period. Let's say you are interested in calculating inventories over the past year starting on January 1 and ending on December 31. On January 1 inventories are valued at $1,000.
Calculate your ending inventories. This is the value of inventory at the end of the time period. Let's say inventories were valued at $10,000 at the end of the year.
Determine your inventory purchases throughout the year. Let's say you purchased $15,000 in inventory over the past year.
Calculate your cost of inventories over the time period. The calculation is: Beginning Inventory ($1,000) + Inventory Purchases ($15,000) - Ending Inventory ($10,000) = $6,000.