Ending Inventory Calculator

Ending Inventory, also known as Closing Inventory, is a company's total value of sellable goods at the end of its accounting period. It considers the initial inventory at the start of the accounting period, the purchases during the period, and the items sold.

Calculating Ending Inventory helps businesses maintain consistent inventory reports and get a better picture of their current assets, gross profit, and average spending at the end of the year.

For businesses that deal with dozens of products simultaneously, manually calculating Ending inventory is time and labor-consuming.

Luckily, Ending Inventory Calculator exists. This calculator automatically calculates a company's Ending Inventory through its starting inventory, net purchases, and costs of goods sold.

How to Calculate Ending Inventory

When calculating your ending inventory, you can do either a physical or an analytical count.

Conducting a physical count is the most straightforward method of calculating your ending inventory, but it's also the most time-consuming. Furthermore, it opens a lot of room for human error since you'll have to manually count the remaining products in your inventory.

This brings us to the second method: using an ending inventory calculator. The calculator uses the following formula:

End Inventory = (Starting Inventory + Net Purchases) − Cost of Goods Sold

It can also be abbreviated to:

endInv = (startInv + netPurch) − COGS

Starting Inventory refers to the value of your company's inventory at the beginning of the accounting period. In contrast, Net Purchases refer to the value of the items that were purchased before the end of the accounting period.

Cost of Goods Sold is the direct cost incurred in the production of goods sold by your company.

For example, let's assume that your company has a starting inventory of $30,000 and a net purchase value of $40,000. Subtract this figure from the cost of producing the goods you sold during that accounting period. Let's say it was $45,000.

Now, input these figures in the formula:

• endInv = (startInv + netPurch) − COGS
• endInv = ($30,000 + $40,000) − $45,000
• endInv = $70,000 − $45,000
• endInv = $25,000

 How to Calculate Inventory Turnover

To maximize efficiency, the Ending Inventory Calculator automatically calculates your inventory turnover to help you determine how well your company generates sales from its stock in a month, a quarter, or (most commonly) a year.

With this figure, you'll be able to make more informed decisions when it comes to product manufacturing, marketing, pricing, and purchasing.

The Ending Inventory Calculator calculates Inventory Turnover with the following formula:

invTurn = COGS / ((startInv + endInv) / 2)

Using the same example above, the Inventory Turnover calculation will appear as follows:

• invTurn = $45,000 / (($30,000 + $25,000) / 2)
• invTurn = $45,000 / (($55,000) / 2)
• invTurn = $45,000 / $27,500
• invTurn = 1.6

Usually, high inventory turnover is proof of more sales and moderately good inventory.

For most industries, the ideal inventory turnover ratio is between 5 and 10, with a sweet spot of between 2 and 4. An inventory turnover of less than 2 could mean weak sales due to poor team performance or a decline in the popularity of the products.

4 Methods to Calculate the Ending Inventory

Ending Inventory can be calculated in three different methods:

FIFO (First In First Out Method)

In the FIFO method, the Ending Inventory is calculated by the order in which the items are listed in the inventory. This means that the first item purchased is the first item sold.

Since prices tend to increase over time, companies that use the FIFO method sell their least expensive product first. It also allows companies to sell older items first to make space for newer goods in their inventory later.

LIFO (Last In, First Out)

The LIFO method is the exact opposite of the FIFO method. In this method, the most recently purchased inventory is sold first.

Companies that utilize this method to sell goods with higher costs are sold first, resulting in a higher COGS amount during the first few accounting periods. Over time, the net income tends to decrease as lower-priced products are displayed.

WAC (Weighted Average Cost)

In the WAC method, the average cost per unit is calculated by dividing the total cost of goods available for sale, regardless of purchase date.

This method is especially useful in companies that sell multiple products of the same type, as it allows them to calculate the ending inventory without having to track the individual cost of items.

Special Identification

Under the Special Identification method, inventory items are tracked from the time they're purchased until the time they're sold.

Items are identified separately through barcodes, stamp receipts, RFID tags, serial numbers, or any other source. This method is popular in industries that sell unique items, such as cars, precious jewels, antiques, and real estate.

Calcopolis allows to manage your inventory

Here at Calcopolis you can find many more tools that allow you to manage your invetory in a more efficient way. For example the inventory turnover calculator let's you calculate how efficiently your company uses its inventory.

Authors

Created by Lucas Krysiak on 2022-11-25 15:13:49 | Last review by Mike Kozminsky on 2022-12-10 15:07:54