Q:

How do you calculate beginning inventory?

A:

To calculate beginning inventory, evaluate the cost of products available for sale at the start of the accounting period. Use previous accounting records to subtract the cost of goods sold and previous closing inventory from the total inventory.

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1. Gather records and calculate cost of goods sold

Gather and sort the accounting records from the previous financial period. Sort the records separately to differentiate between statements, invoices and receipts. Use this data to calculate the cost of goods sold within the period.

2. Calculate closing inventory

Calculate the amount of stock that is left at the end of the year to determine the closing inventory. This is to be evaluated by manually counting the inventory and summing up the respective values.

3. Calculate purchases

Using all the invoices and credit notes, calculate the sum of the purchases made. From this amount, subtract the sum of the goods sent back to the supplier. This is the net amount of purchases made during the period.

4. Calculate beginning inventory

Finally, to calculate beginning inventory, add up the sum of the closing inventory and the cost of goods sold. From this figure, subtract the purchases that were calculated in step 3 to get the total beginning inventory.

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