Ending Inventory Calculator
Ending Inventory Calculator
Formula: Ending Inventory = Beginning Inventory + Net Purchases - COGS
Report Bug At the end of every accounting period, a crucial question arises: "How much is the stuff in our warehouse actually worth?" The Ending Inventory Calculator answers this by bridging the gap between what you bought and what you sold. In US accounting (GAAP), this figure is vital because it directly affects your Cost of Goods Sold (COGS). A higher ending inventory value means lower COGS and higher taxable income.
Whether you use a periodic system or a perpetual scanner system, accuracy here is what keeps the IRS auditors away.
📦 The Basic Inventory Equation
Before applying complex valuation methods, you must establish the flow of goods logic:
Variables Defined:
- Beginning Inv: Value of stock at the start of the year.
- Net Purchases: Everything bought during the year (plus freight-in).
- COGS: The cost attributed to items that were sold.
📊 Scenario: The "Inflationary" Widget
You sell widgets. Costs are rising. You started with 100 units @ $10. You bought 100 more @ $15. You sold 150 units total. You have 50 units left. What are those 50 units worth?
CPA Tip: The US is one of the few countries that allows LIFO. Many companies use it to reduce their taxable income when prices are rising. However, if you use LIFO for taxes, you MUST use it for financial reporting (The LIFO Conformity Rule).
US Accounting Standards (GAAP)
- Physical Count vs. Perpetual: Most modern US retailers use "Perpetual" systems (scanners) that update inventory instantly. However, a "Physical Inventory Count" is still required at least once a year to correct errors (Shrinkage/Theft).
- LCM Rule (Lower of Cost or Market): GAAP requires that if the market value of your inventory drops below what you paid for it (e.g., outdated electronics), you must write down the value on your books.
- Work in Process (WIP): For manufacturers, ending inventory isn't just finished goods. It includes raw materials and half-finished items sitting on the assembly line.
Frequently Asked Questions (FAQs)
Why do the results differ between FIFO and LIFO?
Because purchase prices change over time (usually increasing due to inflation). FIFO assumes you have the newest (most expensive) items left on the shelf, valuing your assets higher.
What is "Inventory Shrinkage"?
This is the difference between what your computer says you have and what you actually count on the shelf. It is caused by theft, damage, or administrative errors. You calculate it as: Book Inventory − Physical Count.
Can I switch methods every year?
No. The IRS requires consistency. If you want to switch from FIFO to LIFO, you must file Form 970 and stick with the new method for a significant period.
Does this calculator handle "Weighted Average"?
Yes. This method smoothes out price fluctuations by dividing the Total Cost of Goods Available for Sale by the Total Units Available. It is commonly used in gas stations and chemical plants.
What happens if Ending Inventory is overstated?
If Ending Inventory is too high, COGS is too low. This makes your Profit look artificially high, which means you will overpay in taxes. Accuracy is expensive, but errors are more expensive.
