Let’s take an example to understand the calculation of Inventory in a better manner. Ending Inventory is then calculated by the average cost per unit by the number of units available at the end of the period.Įxamples of Inventory Formula (With Excel Template) Weighted Average Cost Method: In this method, the average cost per unit is calculated by dividing the total value of inventory by the total number of units available for sale.So if the market environment is inflationary, ending inventory value will be lower since items which are purchased at a lower price are part of ending inventory LIFO (Last IN First OUT) Method: In this method, items which are purchased last will be sold first and the remaining items will be the old purchases.So if the market environment is inflationary, ending inventory value will be higher since items which are purchased at a higher price are part of ending inventory FIFO (First IN First OUT) Method: In this method, items which are purchased first will be sold first and the remaining items will be the latest purchases.There are 3 different ways of calculating ending inventory: Add the new purchases and subtract the Cost of goods sold Methods For Calculating Ending Inventory So to calculate ending inventory for the period, we will start will the inventory which is currently listed on company’s balance sheet. This happens because of various reasons like inventory lost, stolen inventory, etc. Any difference between the counted inventory and inventory on a balance sheet is called “shrinkage”. In order to make ensure inventory records are accurate and up to date, businesses usually take an inventory count at the end of each quarter or year. Inventory can be finished goods, Work in process goods or raw material. The reason is that it is expected that it will be sold in the coming months. Inventory is part of a company’s balance sheet and in categorized under current assets.
So basically, businesses produce goods to sell in the market and the products which are still lying with the business is part of the inventory. Inventory, in very simple terms, is basically products, goods, raw material which are not utilized by the business and expected to be used. Examples of Inventory Formula (With Excel Template).
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