What Is Beginning Inventory?

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The Beginning Inventory Calculator allows you to determine the value of all inventory held at the start of the accounting period, indicating the value of stock/goods that can be sold to create revenue.

Beginning Inventory Calculator

The book value of a company’s inventory at the beginning of an accounting period is known as beginning inventory. It’s also the value of merchandise carried over from the previous accounting period’s end.

Cost of goods sold – 0 Purchases – 0 Ending Inventory – 0

Managing inventory by cost and units is vital for operational efficiency on a large scale. Inventory managers are in charge of keeping track of inventory costs, tracking inventory movement, supervising inventory operations, preventing inventory theft, and managing units of inventory retained.

Beginning Inventory in E-commerce

How Does Inventory Forecasting work?

Beginning inventory comparisons between years can reveal valuable data about the company’s performance, including the worth and income of the goods. A business may benefit from realizing the benefits of beginning inventory for a myriad of factors, including

Observing demand shifts

A shift in company activity is typically indicated by a change in beginning inventory from the previous years. For instance, increasing sales over the past years might have led to a reduced beginning inventory count than the prior month. Increased beginning inventory could be an indicator of declining sales.

Identifying problems in inventory management

An unusual increase in the typical quantity of the remaining product could indicate that the supply chain process failed if the manager of an inventory did not reorder enough. When there is very little beginning inventory, it may suggest that more than required goods were ordered previously.

Supply chain issues

A supply management issue could also occur from having more or less inventory than expected. It is possible that the warehouse manager only collected a fraction of the intended goods or the supplier mishandled the transaction.

Preparation of filing taxes

If a merchant calculates their average inventory at the end of each financial year and how much they will need in the subsequent quarter, they can pre-purchase goods. Reducing their tax payments can assist the merchant in lowering their tax obligation.

Keeping track of reduction in the inventory

A retailer or an e-commerce wholesaler should always keep track of any sort of reduction taking place in the number of goods. This can occur due to human error, damaged goods, or possibly stolen items, which worries retailers and e-commerce wholesalers. While mistakes may occur, it’s vital to watch for shrinkage patterns to ensure that employees aren’t stealing goods.

Beginning Inventory in E-commerce

Balance Sheets

Balance sheets are a crucial indicator of financial stability because they boost your prospects of applying for bank loans and build confidence in your investors and partners. Inventory is frequently the most valuable asset in an e-commerce business, and beginning inventory is the quantity documented when a new accounting period begins.

Beginning Inventory in E-commerce

Internal Accounting Documents

Beginning inventory provides information about the value of a stock, which is helpful for internal accounting papers like income statements. It contributes to e-commerce bookkeeping in the following ways:

  • Identifies any potential discrepancies and inventory wastage
  • When inventory loses its value due to damage, theft, loss, or a drop in market value, it cannot be sold in the market.
  • Determines the future production and reorder numbers to avoid having too much or too little inventory
Beginning Inventory in E-commerce

Tax Documents

Understanding starting inventory allows inventory managers to calculate the tax deductions from the stock. An excessively large or insufficient initial inventory can damage the taxes.

For example, a large amount of e-commerce inventory will not help save taxes because the tax deduction is only available after the goods are sold or judged worthless and disposed of.

Furthermore, holding large amounts of inventory and/or many SKUs will increase your e-commerce warehousing costs.

Beginning Inventory in E-commerce

Formulas Related to Beginning Inventory

Beginning inventory is the value of an inventory that starts the accounting period (typically a year or a quarter). Ending inventory, also known as closing inventory, is the inventory value at the end of an accounting period. These two values are required to generate a company’s income statement and may also appear on income statements.

Beginning inventory indicates your balance before purchasing or selling existing inventory during an accounting period. If the total ending inventory exceeds the cost of the beginning inventory, this indicates that the corporation purchased more than it sold. Beginning inventory is sometimes regarded as the prior accounting period’s ending inventory.

When a new accounting period begins, businesses use the beginning inventory formula to understand inventory value better.

Two reasons make calculating a beginning inventory critical:

  • It can help monitor current business developments.
  • It informs about any problems caused by the supply chain or inventory management systems.

Formulas for calculating beginning inventory:

(Cost of Goods + Ending Inventory) – Inventory Purchased during the period = Beginning Inventory

Amount of Goods Sold x Unit Price = Cost of Goods Sold

Amount of Goods in Stock x Unit Price = Ending Inventory

Beginning Inventory in E-commerce

COGS

The cost of goods sold or COGS is the cost of obtaining or manufacturing the products that a company sells over a certain period. Therefore the only costs included in the metric are those directly related to product creation, such as labour, materials, and factory overhead.

For example, an automaker’s COGS would include the material costs for the car’s parts and the labour costs used to assemble the car. The costs of transporting the vehicles to dealerships and the labour required to sell the vehicle would be removed.

The cost of goods sold formula is computed by adding the period’s purchases to the beginning inventory and subtracting the period’s ending inventory.

Cost of goods sold = Beginning inventory + Purchases – Ending inventory

The current period’s beginning inventory is computed using the previous year’s remaining inventory. Any additional inventory bought or generated is added to the starting inventory. Unsold products are removed from the total beginning inventory and further acquisitions to calculate the cost of goods sold (COGS).

Example:

In April, a car manufacturer had a starting inventory of INR 2,50,64,900 and purchased another INR 5,37,10,500 worth of inventory. April was a profitable month, with the remaining inventory totalling INR 89,50,187 at the end of the month.

Let us now apply the formula to calculate the cost of goods sold

COGS = Rs. 2,50,64,900 + Rs. 5,37,10,500 – 89,50,187

COGS = Rs. 6,98,25,213

Therefore, the cost of goods sold (COGS) of the car manufacturer is Rs. 6,98,25,213

Beginning Inventory in E-commerce

Why Is Beginning Inventory Useful?

Changes in initial inventory from the prior period usually indicate a company transition. Decreased initial inventory, for example, could result from increased sales throughout the period or a problem in the supply chain or inventory management process. Increased beginning inventory could indicate a declining tendency in sales or a business ramping up supplies before a busy period.

Beginning inventory, like any business accounting, is a practical approach to better understanding a company’s sales and operational patterns and modifying the business model based on the data.

Beginning Inventory in E-commerce

How to Calculate Beginning Inventory

When an accounting cycle ends, you will likely have some inventory in your business. That is referred to as the ending inventory. Unless you sell perishables, you will probably carry this inventory to the next accounting process and record it as beginning inventory.

For example, if your fiscal period or accounting cycle finishes on May 31st and your ending inventory as of March 31st is $80,000, the beginning inventory you will record on June 1st will be $80,000. This does not apply if you stock perishables and dispose of them at the end of the period.

Not only does the financial cost of the closing inventory carry over to the next period. You also carry forward the actual quantity of products sold into the next period.

So, if the $80,000 in products represents 10,000 units at an average unit cost of $8 apiece as of May 31st, you will register the same number of items as your beginning inventory as of June 1st. Again, if you stock perishables and dispose of them at the end of the term, this won’t work.

Beginning inventory can be calculated by using the following formula:

Beginning inventory = Cost of goods sold + Ending inventory – Purchases

Let’s take a look at the steps for finding initial inventory:

1. Using the records from the previous accounting period, calculate the cost of goods sold (COGS).

COGS = (Precious accounting period beginning inventory + prior accounting period purchases) – prior accounting period ending inventory

2. Multiply the ending inventory balance by the production cost of each inventory item. Compute the new inventory amount in the same way.

Ending inventory = Prior accounting period beginning inventory + Net purchases for the month – COGS

3. Add the cost of goods sold and the ending inventory to the equation.

4. Calculate the beginning of the inventory by subtracting the number of goods acquired.

Beginning Inventory in E-commerce

Beginning Inventory Calculator

The Beginning Inventory Calculator allows you to determine the value of all inventory held at the start of the accounting period, indicating the value of stock/goods that can be sold to create revenue.

Cost of goods sold – 0
Purchases – 0

Ending Inventory – 0

Beginning Inventory in E-commerce

How to Calculate Beginning Inventory

These examples will help clarify the calculation of beginning inventory better:

Example 1:

Calculate the COGS utilising the records from the preceding accounting period.

A candle shop owner, for example, sold 600 candles during the year at $3 each.

COGS = 500 x $3 = $1500

Calculate your balance of ending inventory and the quantity of new stock purchased or manufactured throughout the period using your accounting data.

The same candle shop owner had 800 candles in stock at the close of the last accounting year and created 1,000 more the next year.

Ending inventory = 800 x $3 = $2400
New inventory = 1,000 x $3 = $3000

Add the ending inventory and the cost of products sold to the total.

$1500 + $2400 = $3900

Subtract the quantity of inventory purchased from the answer to calculate the initial inventory.

$3900 – $3000 = $900

Therefore, the beginning inventory of the candle business is $900.

Example 2:

A retail store selling snow shovels sold 250 shovels during the accounting period at $10 each.

COGS = 250 x $10
= $2500

Let’s calculate the ending inventory and new inventory.

The retail store had 500 shelves in stock at the end of the previous accounting year and created 1200 more the following year.

Ending Inventory = 500 x $10 = $5000
New Inventory = 1200 x $10 = $12000

$2500 + $5000 = $7500

$12000 – $7500 = $4500

Therefore the $4500 is the beginning inventory of the retail store selling shovels.

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FAQs

Beginning inventory can be found by calculating the cost of goods sold, ending inventory, and inventory purchases.

A store owner that sells t-shirts sold 1000 t-shirts during the accounting period at $30 each. The cost of goods sold in the inventory is $30,000.

The store owner had 2000 t-shirts in stock at the end of the previous accounting year and created 4000 more the following year. The ending inventory of t-shirts is $60,000, and the new inventory is $120,000.

$30,000 + $60,000 = $90,000

$120,000 – $90,000 = $30,000

Therefore, the beginning inventory of Tshirts is $30,000.

Beginning inventory is the value of your inventory at the start of an accounting period, typically a year or a quarter. In contrast, an ending inventory, also known as closing inventory, is the inventory value at the end of an accounting period.

Here’s the formula of the beginning inventory:

(Cost of Goods + Ending Inventory) – Inventory Purchased during the period = Beginning Inventory

Beginning inventory is the entire monetary amount of the current inventory that a company holds at the start of an accounting period. Beginning inventory refers to all a company’s stock on hand that it can sell for profit.

For internal accounting records like income statements, beginning inventory provides information about the stock’s valuation. With the following aspects, it aids in e-commerce bookkeeping to determine any potential inconsistencies and inventory loss.

If your beginning inventory is minimal to nonexistent, you may have placed too many orders for inventory the last time. Bringing up issues with the supply chain is similar to having extra or fewer stock than usual; this could result from a supply chain problem.

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