Small Business Inventory Formula
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FAQ
Beginning inventory is the value of your company's inventory at the beginning of an accounting period. To calculate beginning inventory, you can use the following formula: (COGS + ending inventory) - inventory purchases.
The formula can be expressed as: Beginning Inventory = Sales (COGS) + Ending Inventory - Purchases (inventory added to stock). For example, if a company had $450,000 in sales/COGS, $600,000 in ending inventory, and $300,000 in purchases, then its beginning inventory would be $750,000 (450,000 + 600,000 - 300,000).
You begin by calculating the cost-to-retail ratio, which is the cost of goods available for sale divided by their retail value. Multiply this ratio by the difference between the retail value of goods available for sale and total sales for the period. The result is an estimate of the cost of ending inventory.
The formula to calculate the ending inventory balance is as follows. Ending Inventory = Beginning Inventory Balance ? COGS + Raw Material Purchases. Days Inventory Outstanding (DIO) = (Inventory ÷ COGS)× 365 Days. Inventory Turnover Ratio = COGS ÷ Average Inventory Balance.
What is included in ending inventory? The basic formula for calculating ending inventory is: Beginning inventory + net purchases ? COGS = ending inventory. Your beginning inventory is the last period's ending inventory. The net purchases are the items you've bought and added to your inventory count.