Beginning Inventory: Definition & Calculation Formula

What is beginning inventory?

Beginning inventory is the dollar value of all inventory held by a business at the start of an accounting period, and represents all the goods a business can put toward generating revenue. You can use the beginning inventory formula to better understand the value of your inventory at the start of a new accounting period.

How to calculate beginning inventory

• Determine the cost of goods sold (COGS) using your previous accounting period’s records.
• Multiply your ending inventory balance with the production cost of each item. Do the same with the amount of new inventory.
• Add the ending inventory and cost of goods sold.
• To calculate beginning inventory, subtract the amount of inventory purchased from your result.

Beginning inventory calculator

To save you time, we have built a beginning inventory calculator just for you: 

  Cost of goods sold Total of all costs incurred in creating your product or services + Ending inventory The dollar value of goods still available for sale and held at the end of an accounting period   — Purchases The dollar value of inventory purchased Start by adding your data above

Beginning inventory calculation with examples

1. Determine the cost of goods sold (COGS) using your previous accounting period’s records. Example: Candles cost $2 each to produce, and Jen’s Candles sold 600 candles during the year.
   
   COGS = 600 x $2 = $1200 
   
   
2. Use your accounting records to calculate your ending inventory balance and the amount of new inventory purchased or produced during the period. Example: Jen’s Candles had 800 candles in stock at the end of the previous accounting period, and produced a further 1000 candles during the next year.

   Ending inventory = 800 x $2 = $1600. New inventory = 1000 x $2 = $2000

3. Add the ending inventory and cost of goods sold. Example: $1600 + $1200 = $2800
4. To calculate beginning inventory, subtract the amount of inventory purchased from your result. Example: $2800 - $2000 = $800 
   
   

Why is beginning inventory useful?

Any change to beginning inventory compared with the previous period usually signals a shift in the business. For instance, decreasing beginning inventory could be a result of growing sales during the period, or it could be due to an issue in the supply chain or inventory management process. Increased beginning inventory could be due to a business ramping up stock before a busy period, or it could signal a downward trend in sales.

As with all business accounting, beginning inventory is a good way to better understand sales and operational trends for a business and make improvements to the business model based on the available data.