Ending inventory is the amount of goods a business has on hand at the end of an accounting period.
Ending inventory is the amount of goods a business has on hand at the end of an accounting period. This does not include items you need to run the business; It only includes goods that you sell to other companies or to the public as a normal part of your business. A company expresses this inventory in units of goods and in monetary units for various internal records of the company.
In some cases, such as fashion retail stores, items from previous seasons left in ending inventory may be sold at discounted prices.
For financial statements, ending inventory is recorded as a monetary value on the balance sheet and income statement. It appears on the income statement when calculating the cost of goods sold. On the balance sheet, it appears as an asset. In essence, this value is the cost of goods not sold.
A company calculates the cost of goods sold to help determine gross profit. A company does not record all income from the sale of goods as profit. It cost the company money to buy the goods sold during a period. The cost of goods sold tells a company how much it paid for the goods that customers bought during the period. The total amount paid for all goods sold is deducted from the total amount of sales revenue; This gives the company a gross profit figure.
Beginning inventory plus net purchases minus cost of goods sold equals ending inventory. This formula tells a business that it started with a certain amount of goods to sell. In the period, he bought more merchandise to keep the shelves and displays full. In addition, it sold inventory to customers during the period; The cost of selling this inventory is the cost of goods sold. The merchandise that is still available for sale in the next period is your ending inventory.
Inventory still on a company’s premises at the end of an accounting period becomes the beginning or beginning inventory of the next accounting period. To verify the calculated ending inventory value, a business takes physical inventories at the end of an accounting period, usually the end of the fiscal year. Most modern businesses rely on their computerized perpetual inventory systems to track inventory over the course of a fiscal year.
To determine the inventory level at the end of the period, a business conducts a physical count of all available inventory. Then multiply the number counted for each item by the cost per item based on the accounting records. The costs of all goods are added to calculate the total cost of inventory on hand. This is the ending value of the inventory, which can be verified with the accounting records.