Our Ending Inventory Calculator is worth it at the end of an accounting period. You’ll be able to find out how to compute the final inventory value that goes into your balance sheet fast and easily using this tool. In addition, you’ll be able to calculate inventory turnover to see how well your product is selling.

In addition, calculate the ending inventory and turnover by entering the entire beginning value of the inventory, net purchases, and cost of goods sold. This calculator is a very useful tool, alongside with other tools on our site. Make sure to check the Percent Off Calculator, or this interesting Sensitivity and Specificity Calculator.

Ending Inventory

What is the definition of an ending inventory? We can define ending inventory as the value of products remaining available for sale and kept by a corporation after an accounting period. Multiple valuation methods can determine the monetary amount of ending inventory.

Although the physical quantity of units in ending inventory is unaffected by the inventory valuation technique chosen by management, the monetary value of ending inventory is.

On the balance sheet, ending inventory is a major asset. Therefore, it’s critical to appropriately record ending inventories, especially when seeking financing. In addition, as part of a debt covenant, financial institutions often require that specific financial ratio such as debt-to-assets or debt-to-earnings by the date of audited financials.

As a result, investors and creditors regularly watch audited financial accounts in inventory-heavy firms like retail and manufacturing.

In addition to calculating ending inventory under ordinary business conditions, we need to record the inventory for numerous reasons such as theft, market value declines, and general obsolescence. For example, if there is a significant drop in customer demand for the goods, the market value of the inventory of goods may fall.

Obsolescence can also occur if a newer edition of the same product is introducing while the existing version’s inventory is still available. In the ever-changing technological business, this sort of circumstance is most typical.

Ending Inventory Formula

Also, the formula for calculating ending inventory is straightforward, with CalCon, everything is easy:

EI = BI+NP-CGS

Where:

EI – Ending inventory,

BI – Beginning inventory,

NP – Net purchases,

CGS – Cost of goods sold.

The ending inventory of the previous period is your starting inventory. The products you’ve purchased and added to your inventory count are net purchases. In addition, the whole cost of acquiring or manufacturing finished items that are ready to sell, that all include in the cost of goods sold.

Also, a physical inventory count is the easiest approach to computing ending inventory. However, a physical count isn’t necessary most of the time, especially if you have a huge number of goods to maintain.

How to Calculate Ending Inventory?

Computation of ending inventory can be at the most basic level by adding new purchases to beginning inventory and subtracting the cost of products sold (COGS). A physical inventory count can result in a more accurate ending inventory.

However, for larger companies, this is frequently impractical. Inventory management software, RFID systems, and other linked device and platform technologies can help with the inventory count difficulty.

The company’s ending inventory is always based on the market worth – or the lowest value – of its goods or items. The most straightforward approach for calculating closing inventory is to perform a physical count at the end of each month and then value the inventory using a valuation method such as LIFO, FIFO, or the Weighted Average Cost Method.

However, in most circumstances, a physical count is impractical. As a result, we can explain the closing inventory through these two approaches:

  1. Gross Profit Method
  2. Retail Method

Gross Profit Method

To calculate closing inventory using the gross profit technique, complete these steps:

  1. To the cost of purchases throughout the time, add the cost of establishing inventory. This is the price of things that are available for purchase.
  2. To calculate the expected cost of products sold, multiply the gross profit percentage by sales.
  3. To calculate the ending inventory, subtract the cost of goods or products offered for sale from the cost of goods sold.

If you want to learn something more about gross profit, be sure to check out our Gross Profit Calculator, also be sure to check out our official site.

Retail Method

Retailers frequently utilize the retail inventory technique to calculate their ending inventory. The percentage of the retail price to cost in previous periods is used in this strategy. The formula is as follows:

Calculate the cost-to-retail ratio (CTRR). Formula is:

CTRR =  \frac {Cost} {Retail \; price​​}

Calculate the cost of the things you’re selling. Formula is:

CGS= Cost \; of \; BI +Cost \; of \; purchases

Third, additionally determine the cost of sales for the time period. Formula is:

Cost  of  Sales = { Sales \times CTTR}

Also, you can use the formula below to compute the ending inventory.

EI = CGS - Cost \; of \; sales \; during \; the \; period

FIFO Method

The principle of first-in, first-out (FIFO) posits that the company’s oldest products were employed to create the things that were sold first. This technique implies that the first products ordered will be the first to sell.

The cost of the oldest things purchased is assigned first to COGS, while the cost of more recent purchases is allocated to ending inventory, which is still on hand at the end of the period, according to FIFO.

LIFO Method

LIFO is one of three techniques for allocating costs to ending inventory and cost of goods sold (COGS). Also, we can assume that the company’s most recent purchases can use to manufacture the goods sold first in the accounting period.

Assume that the most recent things that we order will be out first. The cost of the most recent things that we purchase assign first to COGS under LIFO. While the cost of previous purchases is allocated to ending inventory—what remains on hand at the end of the period.

Weighted Average Cost Method

So, if you want to assign a cost to end inventories and COGS, the weighted average cost method divides the entire cost of items purchased or produced in a period by the total number of things purchased or produced. The average is “weighted” because the quantity of things purchased at each price point is considered.

Inventory Turnover Ratio

The inventory turnover ratio can measure how many times a company’s inventory has been sold and refilled over a certain time period. The method may also determine how long it will take to sell the current inventory. The computation of the turnover ratio is by dividing the cost of products sold by the average inventory during the same time period.

A greater ratio is preferable to a low ratio since a high ratio indicates robust sales. To establish your turnover ratio, you’ll need good inventory control, also known as stock control, where the company knows exactly what it has on hand.

Ending Inventory Calculator – How to Use?

Here are the basic steps of how you can use this Ending Inventory Calculator or formula for calculating the ending inventory:

  1. Determine the starting inventory value first. This will include counting all of the inventory that is currently on hand and multiplying it by the cost of those items.
  2. Calculate the total net purchases next. Also, the calculation of this will be by multiplying the total number of things sold by the price of those products.
  3. Find out how much the things sold cost. This is the full cost of a product, including operational and raw material expenses.
  4. Finally, figure out how much inventory you’ll have at the end of the day. To compute the ending inventory value, enter steps 1-3 into the formula or calculate above.

Ending Inventory Calculator – Example

For example, XY Company began production with a $10.0000 starting inventory. During the month of January, XY Company acquired $50.000 in inventory on the 16th and $30.000 on the 25th. XY Company sold $ 120.000 worth of merchandise on January 29th. Calculate the same’s ending inventory.

Beginning Inventory = $100.000

Purchases = $80.000

Cost of goods sold (COGS) = $120.000

Ending inventory = Beginning Inventory + Purchases – Cost of goods sold (COGS) = $100.000 + $80.000 – $120.000 = $60.000

FAQ

What is ending inventory in accounting?

The value of the stock or product that remains after an accounting period is referred to as ending inventory. The value of ending inventory is calculated by subtracting the cost of items sold from the value of beginning inventory plus acquisitions.

What is beginning inventory and ending inventory?

Beginning inventory, also known as starting inventory, is the value of your inventory at the start of an accounting period (typically a year or a quarter). As a result, ending inventory, also known as closing inventory, refers to inventory value at the end of a fiscal month.

How do you calculate ending inventory?

Beginning inventory + net purchases – Cost of Goods Sold = Ending inventory; is the fundamental formula for calculating ending inventory.

How do you find ending inventory without COGS?

You need the value of COGS to calculate ending inventory.

How to calculate ending inventory using FIFO?

The FIFO approach states that the first units sold are sold first, and the computation is based on the newest units. Because the newest unit acquired cost was $10, the ending inventory would be 1,500 x 10 = 15,000 pieces. Therefore, the company’s closing inventory would be $15,000.

What is a good ending inventory?

Also, a lower net profit is the result of a greater COGS. As a result, the technique used to value inventories and COGS will directly influence income statement profit and typical financial ratios generated from the balance sheet.