![]() ![]() As for increased beginning inventory cost, it can result from either building up stock before a busy period, like right before the holidays, or a downward trend in sales. On the other hand, it can result from issues in your supply chain or inventory management processes. For example, on one hand, decreased beginning inventory cost is a good sign, because it can result from sales growth during a particular period. The main reason is that it can help you monitor current trends in your business. Why is beginning inventory and ending inventory cost calculation so important? ![]() Sometimes the beginning inventory is considered to be the ending inventory of the previous accounting period.īusinesses use the beginning inventory formula to get a better understanding of inventory value when a new accounting period starts. ![]() If the total ending inventory is larger than the cost of the beginning inventory, that’s because the company bought more than it sold. These two figures are necessary to create an income statement of a company, and sometimes they even appear on income statements.īeginning inventory reflects your balance before you purchase more inventory items or sell the existing inventory during an accounting period. Accordingly, ending inventory, or closing inventory, is the value of inventory at the end of an accounting period. Beginning inventory, or opening inventory, is your inventory value at the start of an accounting period (typically a year or a quarter). ![]()
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