Question

How to calculate ending inventory

Answer 1

There are several ways to calculate the cost of a company's ending inventory. The first method is to

1) physically count the quantity of each of the items in inventory and then
2) multiply those quantities by each item's actual unit cost. The actual unit costs must be consistent with the cost flow assumption (FIFO, weighted-average, etc.) that was elected by the company. Special attention is required for items that are on consignment or are in transit. Taking the physical counts can be very time consuming and complicated if inventory items are moving between operations. As a result, large companies are likely to physically count the inventory items only at the end of the accounting year.

Answer 2

Ending inventory, the value of goods available for sale at the end of the accounting period, plays an important role in reporting the financial status of a company and can best be figured out using the equation, Beginning Inventory + Net Purchases - Cost of Goods Sold (or COGS) = Ending Inventory.