Starting inventory is that the greenback worth of all inventory control by a business at the beginning of an accounting amount, and represents all the products business will place toward generating revenue for that amount. You’ll use the start inventory formula to raised perceive the worth of your inventory at the beginning of a brand new accounting amount.
How to calculate starting inventory:
- Verify the value of products oversubscribed (COGS) victimization in your previous accounting period’s records.
Example: Books value $4 every to provide, and Jen’s Candles oversubscribed 600 candles throughout the year.
COGS = 800 x $4 = $3200
- Use your accounting records to calculate your ending inventory balance and also the quantity of the latest inventory purchased or created throughout the amount.
Example: Jen’s Candles had 800 candles available at the top of the previous accounting amount, and created an additional a thousand candles throughout the following year.
Ending inventory = 1000 x $4 = $4000
New inventory = a thousand x $4 = $4000
- Add the ending inventory and value of products oversubscribed.
Example: $3200 + $4000= $7200
- To calculate the starting inventory, cipher the quantity of inventory purchased from your result.
Example: $7200- $4000 = $3200
So, during this case, the start inventory worth for Jen’s Candles is $3200.
Why is starting inventory useful?
Any modification to starting inventory compared with the previous amount sometimes signals a shift within the business. As an example, decreasing starting inventory can be a result of growing sales throughout the amount, or it can be as a result of difficulty within the offer chain or inventory management system. Redoubled starting inventory can be as a result of a business ramping up stock before a busy amount, or it might signal a downward trend in sales.
As with all business accounting, starting inventory may be a great way to raise perceive sales and operational trends for business and create enhancements to the business model supported on market knowledge.