![]() This helps stakeholders, creditors, and investors assess the company’s liquidity and overall financial health. This information is vital for assessing the profitability of a company and calculating its gross margin.įinancial Reporting: Beginning inventory is included in the balance sheet as a current asset, reflecting the value of the current set of inventory at the start of an accounting period. By subtracting the beginning inventory from the sum of purchases and ending inventory, you can determine the cost of goods sold during a specific period. ![]() We know that beginning inventory can inform on the decision-making of many different areas within supply chain management, but how and in what ways? Let us assess!ĬOGS Calculation: Beginning inventory is an essential component in the calculation of the cost of goods sold. ![]() ![]() It is however recommended that stock-taking be made periodically, especially at the end of an accounting period, to maintain the accuracy of your accounts. So, working back from the closing inventory, the stock on hand at the end of a given period, we must add the COGS (Cost Of Goods Sold) and subtract the purchases: Beginning Inventory = Ending inventory + COGS – Purchases Step 2: Apply the formula How to Calculate Beginning Inventoryīeginning inventory must be identical to the previous periods ending inventory, however, if we wanted to calculate the beginning inventory we must have the following data: This involves gathering, checking, and confirming that the data available from balance sheets and financial reports are all accurate. We do know that the opening inventory is equal to the previous accounting period’s ending inventory value, however, should a company want to confirm the accuracy, these are the steps that should be taken: Therefore, Beginning Inventory = (COGS + ending inventory) – purchases COGS = (beginning inventory + purchases) – ending inventory Ending inventory = (beginning inventory + purchases) - COGS Let us break down each of these formulas and move onto how they are incorporated into the opening inventory formula. There are many formulas and calculations associated with opening inventory such as the cost of goods sold (COGS) and ending inventory. The results of calculating one’s beginning inventory informs how certain business operations can be adjusted and maximized, from supply chain efficiency to inventory management. What is Opening Inventory?īeginning, or opening inventory, refers to the total value of stock that is available for selling at the beginning of an accounting period, which should be equal to the total value of the previous accounting period’s ending inventory. Calculating and knowing the value of one’s beginning inventory is the first step in the right direction towards a more optimized and efficient inventory management strategy, and thus, it is in this article that we will explore the world of opening inventory: how it’s calculated its importance, and its many uses. Beginning inventory is the jumping platform of many business operations and financial calculations, thus calling for an incredible amount of surety in it being calculated accurately, with the correct factors and values being used.
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