{"id":7073,"date":"2025-04-29T08:31:57","date_gmt":"2025-04-29T08:31:57","guid":{"rendered":"https:\/\/sblog.seebiz.com\/blog\/?p=7073"},"modified":"2025-04-29T08:33:54","modified_gmt":"2025-04-29T08:33:54","slug":"how-to-calculate-ending-inventory","status":"publish","type":"post","link":"https:\/\/sblog.seebiz.com\/blog\/how-to-calculate-ending-inventory\/","title":{"rendered":"How to Calculate Ending Inventory with or without COGS?"},"content":{"rendered":"

There is a direct relationship between business success and revenue. A business is considered successful when it generates consistent revenue over the accounting periods. One of the main factors contributing to business success is how well it manages its inventory. Inventory comprises a major chunk, <\/span>45% to 90%<\/span><\/a>, of any business’s budget.\u00a0<\/span><\/p>\n

But still, up to 43% of small businesses do not monitor their inventory, making it one of the top 10 reasons why<\/span> most startups fail<\/span><\/a>. Because at the end of the accounting period, they are either left with too much inventory, or their inventory finishes even before the accounting period closes. For better management of your inventory and to plan which items are generating more profit margins and which are sitting in the warehouse, you first need to calculate your ending inventory. Ending inventory is the portion of sellable inventory that a business has left after the closing of an accounting period, directly impacting the business’s overall profits and health.<\/span><\/p>\n

In this blog, we will discuss <\/span>how to calculate<\/b> ending inventory<\/b> to ensure a minimum inventory at the end of the closing period.<\/span><\/p>\n

What is ending inventory?<\/b><\/h2>\n

A portion of a business has inventory left at the end of the closing\/accounting period is<\/span><\/i> known as ending inventory.<\/span><\/i>\u00a0<\/span><\/p>\n

You must be wondering why we should manage the ending inventory when we are already managing safety stocks and everything else?<\/span><\/p>\n

Well\u2026.\u00a0<\/span><\/p>\n

According to research, the average business holds <\/span>USD 142,000 worth of extra inventory<\/span><\/a>, more than they actually need to perform smooth operations. This leads to overstocking, which may result in increased ending inventory. Research also shows that up to <\/span>42% of small businesses s<\/span><\/a>truggle with overstocking, which increases their holding costs by <\/span>20-30%.<\/span><\/a> When you only focus on stockouts and try to be cautious about not running out of stock, you might end up overstocking, which can seriously impact your business. With capital tied up in sitting inventory, you cannot manage proper cash flow, leading to poor operations, low restocking, and a reduced budget for marketing activities. This leaves you with more inventory but fewer sales.\u00a0<\/span><\/p>\n

Is ending inventory the same as closing inventory?<\/b>
\n<\/b>Yes, both terms have the same meaning. Ending inventory is used interchangeably with closing inventory. Both represent the portion of inventory left at the end of the accounting period.\u00a0<\/span><\/p>\n

How to calculate ending inventory?<\/b><\/p>\n

You can easily calculate the ending inventory using the most basic formula.<\/span><\/p>\n

Ending Inventory = Beginning Inventory + Net Purchases – Cost of Goods Sold (COGS)<\/i><\/b><\/p>\n

Where:<\/span><\/p>\n

    \n
  • Beginning inventory is the value of inventory at the start of the period (equal to the previous period’s ending inventory)<\/span><\/li>\n
  • Net purchases represent inventory acquisitions during the period<\/span><\/li>\n
  • COGS is the cost of items sold during the period<\/span><\/li>\n<\/ul>\n

    \"How<\/a><\/p>\n

    Source<\/span><\/a><\/p>\n

    You do not need fancy tools and software to calculate the ending inventory. The easiest way is to physically count the inventory, keep the records straight in spreadsheets, and calculate it at the end of the closing period.\u00a0<\/span><\/p>\n

    \"How<\/a><\/p>\n

    Source<\/span><\/a><\/p>\n

    But if you are managing a large inventory with multiple goods, using reliable <\/span>inventory management software<\/span><\/a> like SeeBiz inventory management will be a good idea. It will reduce manual errors and allow you to do weeks of work in a few hours or minutes.\u00a0<\/span><\/p>\n

    How can you calculate ending inventory using different methods?<\/b><\/h2>\n

    1- How to calculate ending inventory using FIFO<\/b><\/h3>\n

    FIFO (First-in, First-out) works in this way: the first items purchased will also be the first ones sold. The easiest way to understand this is by considering a grocery store and how milk coolers are filled there. The old inventory comes in front, and the latest goes to the back. That\u2019s a FIFO method where your ending inventory will be your latest inventory.\u00a0<\/span><\/p>\n

    To calculate ending inventory using FIFO:<\/span><\/p>\n

      \n
    1. List your beginning inventory<\/span><\/li>\n
    2. Record all new purchases made during the period<\/span><\/li>\n
    3. Calculate COGS based on the oldest inventory items<\/span><\/li>\n
    4. Subtract COGS from the sum of the beginning inventory plus new purchases<\/span><\/li>\n<\/ol>\n

      \"How<\/a><\/p>\n

      Source<\/span><\/a><\/p>\n

      In <\/span>FIFO<\/span><\/a>, the ending cost may seem high because the ending inventory comprises the latest inventory, and the cost associated with the newest batches may be higher than the older ones. Therefore, it’s wise to keep a window for cost adjustment to manage the balance sheet properly.\u00a0<\/span><\/p>\n

      \"How<\/a><\/p>\n

      Source<\/span><\/a><\/p>\n

      To understand this, let’s take a look at another simple example;<\/span><\/p>\n

      You purchased 10 items for $10 each. Next month, you will purchase the same 10 items, but now the price of each is $12. Therefore, when calculating the ending inventory, the cost of leftovers may seem high because of the new rates.<\/span><\/p>\n

      To learn more about how FIFO works in inventory management, read this<\/a>.<\/span>\u00a0<\/span><\/p>\n

      2- How to calculate ending inventory using LIFO<\/b><\/h3>\n

      LIFO (Last-in, first-out) works like this: the inventory purchased last will be sold first. In LIFO, your ending inventory will be your old inventory.\u00a0<\/span><\/p>\n

      To calculate ending inventory using LIFO:<\/span><\/p>\n

        \n
      1. Start with your beginning inventory<\/span><\/li>\n
      2. Add all purchases made during the period<\/span><\/li>\n
      3. When calculating sold items, assume the newest inventory was sold first<\/span><\/li>\n
      4. The remaining items (older inventory) constitute your ending inventory<\/span><\/li>\n<\/ol>\n

        In LIFO, the value of the ending inventory may seem less, but keep in mind that it’s your old inventory, and the cost might be less due to the different purchase prices associated with older batches. When calculating the ending cost using the LIFO method, keep the window for cost adjustment.\u00a0<\/span><\/p>\n

        3- How to calculate ending inventory using weighted average<\/b><\/h3>\n

        This method calculates the average cost for all similar items in inventory, regardless of purchase date. In the weighted average method, we apply specific weights to the individual items based on their quantity and then calculate the average cost. For example, we have 10 mugs in the inventory, purchased at different times at different costs. Rather than applying different costs to each mug, we will add the total price of all mugs and then calculate the average cost of each mug to use in the balance sheet.\u00a0<\/span><\/p>\n

        \"How<\/a><\/p>\n

        Source<\/span><\/a><\/p>\n

        To calculate ending inventory using the average cost method, first;<\/span><\/p>\n

          \n
        • Find out the total number of unsold units available in inventory<\/span><\/li>\n
        • Now, calculate the value of the unsold stock<\/span><\/li>\n
        • Lastly, calculate the weighted average cost of each unit available in your unsold inventory.\u00a0<\/span><\/li>\n<\/ul>\n

          Weighted average cost per unit = Total cost of goods available for sale \/ Total number of units available<\/span><\/i><\/p>\n

            \n
          • Then multiply the average weighted cost by the units available (unsold in inventory) to find the ending inventory.\u00a0<\/span><\/li>\n<\/ul>\n

            \"How<\/a><\/p>\n

            Source<\/span><\/a><\/p>\n

            To understand this further, you can see the video below, along with an example:<\/span><\/p>\n