{"id":1374,"date":"2021-06-20T12:48:36","date_gmt":"2021-06-20T19:48:36","guid":{"rendered":"https:\/\/www.logiwa.com\/?p=1374"},"modified":"2025-05-02T08:15:37","modified_gmt":"2025-05-02T15:15:37","slug":"ending-inventory","status":"publish","type":"post","link":"https:\/\/www.logiwa.com\/blog\/ending-inventory","title":{"rendered":"How to Calculate Ending Inventory for Warehouse Management"},"content":{"rendered":"

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Ending Inventory Key Takeaways<\/h2>\n

If you’re an interested businessman and sell goods, you’ve most probably heard about “ending inventory<\/strong>” This term explains the total value of products a company still has for sale at the end of an accounting period. It is a piece of vital information for businesses not only for the chance of selling more but also for projecting marketing and sales for the next month, quarter, or year. That’s why we mentioned almost all the details of it, from the description to the benefits, here in this post to help you better understand the topic.<\/p>\n

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Reading further, you will learn about\u00a0the ending inventory formula<\/strong>, why it is crucial for businesses of all sizes, and how 3PL companies help improve ending inventory management in detail.<\/p>\n

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Contents<\/p>\n

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  1. What Is the Formula to Calculate Ending Inventory?<\/a><\/li>\n
  2. Why Is Ending Inventory Important?<\/a><\/li>\n
  3. Recorded Inventory vs. Actual Inventory<\/a><\/li>\n
  4. What is ending inventory?<\/a><\/li>\n
  5. How to calculate ending inventory using FIFO?<\/a><\/li>\n<\/ol>\n<\/div>\n

    What Is the Formula to Calculate Ending Inventory?<\/h2>\n

    Ending inventory describes the financial value of your available stock status at the end of an accounting period. This information is vital to appropriately calculate the cost of goods sold<\/a> (COGS)\u00a0and ending inventory balance. Once a given accounting period finishes, you take your beginning inventory, add net purchases and subtract the COGS. The resulting figure shows your ending inventory value. To reach an accurate total, you need to claim all your inventory as an asset initially. Shortly, it refers to the sellable goods in your warehouse you have leftover at the end of an accounting period. When it comes to knowing how to calculate ending inventory<\/strong>, various methods impact your financial results at the end of the day. Let’s start with the first one: the FIFO method.<\/p>\n

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    1. FIFO Method (First In, First Out<\/a>): This term tries to tell you that the first inventory you purchase is sold first. The charge of your first inventory purchases is added to your cost of goods sold before the earlier purchases, which are added to your ending inventory. The logic in this technique is that a company would sell the oldest inventory items first and keep the recent items in inventory to help avoid obsolescence. For example, if purchased 100 products were for $10 and 100 more products were purchased next for $15, FIFO would assign the cost of the first item of $10. After sold 100 items, the new cost of the item would become $15, no matter what was additionally purchased. FIFO technique is generally preferred most on high prices or inflation, as it produces a higher value of ending inventory than any alternative method.<\/li>\n
    2. LIFO Method (Last In, First Out): LIFO is the inventory valuation method opposite to FIFO and tries to tell you that the recent inventory you purchase is sold and shipped out first. In inflationary economies, this results in deflated net income costs and lower ending balances in inventory when compared to FIFO. For example, let’s say you bought 5 of one SKU at $15 each and another 5 of the same SKU at $20 each. If you sell five units using the LIFO technique, you will sell the five items you purchased most recently at $20 each and record $100 as the COGS. This method could be helpful during times of decreasing prices.<\/li>\n
    3. Average Weighted Method: This is calculated by dividing the amount you spend on the available inventory by the total number of items on hand. It allows you to see an average of the cost of purchased products in your ending inventory. Say that you’ve started the year with an opening inventory balance of 100 items at $2.50 each. You purchased an additional 300 items at $3.50 each later on. In the end, you’d have an ending inventory with 400 items valued at $3.25 each and a total value of $1.300.<\/li>\n
    4. Average Cost Inventory: In this technique, all the items in the inventory are charged the same. To calculate the ending inventory using this method, you need to divide the inventory cost by the total number of items ready for sale. It takes you to the result of net income and it balances between FIFO and LIFO.<\/li>\n
    5. Specific Inventory Tracing: The specific identification inventory valuation method tracks every single inventory item one by one according to its entering and leaving times.<\/li>\n
    6. Gross Profit Method: This is another way of calculating it, in which you need to know either the gross profit percentage or the gross margin ratio. With this information on hand, you need to add the cost of beginning inventory and Calculate the estimated cost of goods sold by multiplying by sales in the period. Lastly, subtract the estimated cost of goods sold from the cost of goods available in the first step to get your ending inventory.<\/li>\n
    7. Retail Method: As retailers mostly prefer this, the method is named after them. The retail method uses a close relation between retail price and costs in the past periods. Here how it goes:<\/li>\n<\/ol>\n
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      • Determine the cost to retail percentage.<\/li>\n
      • Determine the cost of goods ready for sale.<\/li>\n
      • Determine the cost of sales during the period you’re tracking.<\/li>\n<\/ul>\n

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