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In this article, you will get a complete guide on How to Calculate Beginning Inventory in QuickBooks, not just this you will also get steps on how to use the beginning inventory formula, and what does beginning inventory means for your business’s finances.
What is a Beginning Inventory in QuickBooks?
The value of all inventory owned by a business at the start of an accounting period is known as beginning inventory. Opening inventory is another term for beginning inventory. Beginning inventory value represents all of the goods that your business can use to generate money. Beginning inventory is a type of current asset, and it’s an important part of inventory management.
Beginning inventory is a method for better understanding your small business’s sales and operational patterns. You may enhance your inventory management strategy using this data and the inferences you can derive from it. You may reduce inventory costs and increase gross profit by using a better inventory method.
To better comprehend the value of inventory at the start of a new accounting period, apply the beginning inventory formula. If you are not sure how to determine your beginning inventory? You can follow the steps mentioned below.
When Will You Use Beginning Inventory in QuickBooks?
Beginning Inventory is done to compare initial inventory from one period to the next and this can provide information about your business’s success. Usually, the Beginning Inventory is calculated at the start of an accounting period. It can include inventory turnover and value. Knowing the worth of beginning inventory can be beneficial to your firm for various reasons.
The reasons are mentioned below:
● Noting Changes in Demand
Every change in beginning inventory from the preceding period generally indicates a business transition. For example, rising sales throughout the time may have resulted in a lower beginning inventory count than the previous month. A drop in sales might be signaled by a rise in beginning inventory.
● Identifying Inventory Management issues
If you didn’t reorder enough stock, a higher number of units left over than typical might suggest a failure in your inventory management process. If you have little to no starting inventory, it might mean that you over ordered products in the prior quarter.
● Highlighting Supply Chain issues
Having more or less stock than normal might also be the result of a supply chain problem. It’s possible that your supplier didn’t complete your order correctly, or that you only received a fraction of the product you ordered.
● Preparing to File Your Taxes
You can pre-purchase inventory if you can predict your typical inventory at the conclusion of an accounting period and how much you’ll need in the next period. This can help you decrease your tax liability by lowering your taxable income.
● Keeping an Eye out for Shrinkage
When there’s a difference between how much inventory should have been accounted for and what was actually accounted for, it’s called shrinkage. This is a concern for both merchants and e-commerce wholesalers, and it can happen as a result of human mistakes, damaged merchandise, or perhaps stolen goods. While mistakes may happen, it’s critical to keep an eye out for shrinkage tendencies to verify that staff isn’t taking products.
How to Calculate Beginning Inventory
Calculating the Beginning Inventory is not at all a difficult process, it is very easy to calculate. Below mentioned is the formula to calculate the Beginning Inventory:
Beginning Inventory is calculated by= Costs of goods sold+Ending Inventory-Purchases.
Here is the detail breakdown of how to find the beginning inventory:
- First using the records from the preceding accounting period, calculate the cost of goods sold (COGS).
COGS is calculated by = (Previous accounting period beginning inventory + previous accounting period purchases) – previous accounting period ending inventory.
- After that multiply your ending inventory balance by each inventory item’s production cost. Calculate the amount of new inventory in the same way.
Ending inventory is calculated by = Beginning inventory from the previous accounting period + Net purchases for the month – COGS
- Now you need to add the ending inventory and the cost of goods sold to the equation.
Note: You can see the formula for determining ending inventory given above.
- The next step is to calculate the value of beginning inventory.
The value of beginning inventory can be calculated by= Subtract the amount of inventory purchased- number above to calculate.
While calculating the beginning inventory, make sure you are correctly using the numbers. You should double check the numbers because in case you add on the incorrect numbers then it can mislead your calculations. If you want to have accurate results, you need to have the correct beginning inventory calculator.
Example for Calculating Beginning Inventory
Here is an example that would help you to learn how to calculate BegInning Inventory more easily. Follow this example till the end and you will be able to calculate it easily.
- Calculating COGS using the previous accounting period’s records.
Example: If the candle cost $2 each to produce and John’s Candles sold 600 candles during the year. So, what will be the COGS?
COGS= 600* $2= $1200
- Calculate your ending inventory balance and the quantity of new inventory purchased or created throughout the period using your accounting records.
Example: Jen’s Candles, for example, had 800 candles in stock at the end of the previous accounting year and created 1,000 more the following year.
- Inventory at the End of the Year = 800 x $2 = $1,600.
- New Inventory can be Calculated by = 1,000 x $2 = $2,000.
- Adding the ending inventory and the cost of goods sold to the equation.
Example: $1,600 + $1,200 = $2,800
- To calculate beginning inventory= subtract the amount of inventory purchased from your result.
Example: $2,800 – $2,000 = $800.
Taking the Next Step toward Better Inventory Management
One part of enhancing inventory system management and the financial health of your organization is learning how to calculate beginning inventory. But that’s only the beginning. Inventory management software, such as QuickBooks, may make it much easier to run your multi-channel firm. You gain access to capabilities that allow you to maintain inventory, list and manage products, and fulfill orders all in one location with QuickBooks.
While you maintain your beginning inventory it allows you to have access to reports that provide valuable information beyond the initial inventory. It also helps to charge your company and make better decisions that will help you plan, sell, and grow it.
Now that you have a complete guide on How to Calculate Beginning Inventory in QuickBooks, you can easily calculate your company’s Beginning Inventory in QuickBooks. However, if you are stuck or have any queries, you can contact Dancing Numbers customer helpdesk for quick and easy assistance.
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While Calculating Beginning Inventory in QuickBooks, What is the Opening Inventory?
The value of inventory carried forward from the preceding accounting period is utilized to compute the average inventory. It also aids in the calculation of the cost of items sold.
Why is it required to have a Starting Inventory, if you are Calculating Beginning Inventory in QuickBooks?
When computing the cost of goods sold, the beginning inventory is extremely crucial. It’s usually the beginning point for a calculation like this. Start with the initial inventory, add any purchases made during the period, then subtract the ending inventory to get the cost of products sold.
How can you Record your Opening Balance for your Inventory Account, While Calculating Beginning Inventory in QuickBooks?
Follow the steps mentioned below:
First on the left navigation menu click on the + New button.
After that select the journal entry.
Then you need to fill the field to create your journal entry.
Now you need to click on save and new option.
Finally click on the close option.