Ending Inventory Calculator

Background.

Every unit of stock a business pays for ends the period in one of two places: sold, or still on the shelf. That is the whole logic of the inventory rollforward. Add what you started with to what you bought or made and you have the goods available for sale; take away the cost of what went out as sales, and what is left is ending inventory, the asset on the balance sheet that becomes next period's opening balance.

Many small businesses meet the equation backwards. Under a periodic system you count the shelves at year end, value the count, and back into cost of goods sold. Running it forwards is useful when a count is not possible or not yet done: monthly or quarterly figures between annual stocktakes, a check on what the books say should be there before the count starts, or an estimate of stock lost in a fire or burglary. The gap between the rolled-forward figure and a physical count is shrinkage, from theft, breakage, spoilage or miscounted deliveries, and it is often the most useful number the exercise produces.

The arithmetic is trivial; the discipline is in the inputs. All three figures must be at cost rather than selling price, in one currency, for one period, and under one cost-flow method, whether FIFO, weighted average or, under US GAAP only, LIFO. Net purchases should already reflect returns to suppliers, purchase discounts and inbound freight, and a manufacturer enters the cost of goods completed rather than raw purchases.

Mistakes here do not stay put. An ending inventory overstated by 5,000 understates cost of goods sold by 5,000 and inflates this period's gross profit by the same amount, then reverses next period when that figure opens the books.

What is ending inventory calculator?

Ending inventory is the cost of goods a business still holds when an accounting period closes: stock waiting to be sold and, for a manufacturer, raw materials and work in progress as well. It is reported as a current asset at cost, or at a lower amount if the goods have lost value. Because it is simply the part of goods available for sale that was not expensed as cost of goods sold, the two figures always divide one total between them, and an error in either is an equal and opposite error in the other.

How to use this calculator.

1. 01Enter Beginning inventory as the closing inventory on the previous period's balance sheet. The page requires a figure above zero, so it does not cover a business's very first period.
2. 02Enter Net purchases / production added: purchases at cost less returns, allowances and supplier discounts, plus freight-in and non-recoverable import duties. A manufacturer enters the cost of goods manufactured instead.
3. 03Enter Cost of goods sold for the same period, taken from perpetual inventory records or, if you only know sales, estimated as sales × (1 − gross margin).
4. 04Compare the ending inventory with a physical count if you have one. A shortfall is shrinkage or a recording error and is worth tracing before the books close.

The formula.

Ending inventory = beginning inventory + net purchases − cost of goods sold. The first two terms together make goods available for sale, the total cost of everything the business could have sold during the period. Cost of goods sold is the share of that total recognised as an expense; ending inventory is the share carried forward. There are no constants and no unit conversion, so the answer is in whatever currency the inputs share. All three inputs must be positive, and cost of goods sold may not exceed goods available for sale, because a business cannot sell stock it never had; a figure that would come out negative points to a missing purchase or a mismatched period. Each input moves the result one for one, upwards for the first two and downwards for cost of goods sold.

A worked example.

Frequently asked questions.

References& sources.

1. [1]FASB ASC Topic 330, Inventory (BIBLIOGRAPHIC/PAYWALL).
2. [2]IFRS Foundation, IAS 2 Inventories.
3. [3]BIPM, The International System of Units (SI Brochure), 9th ed., version 3.01, coherent derived units and quantity equations.