Ending inventory - What is ending inventory?
Ending inventory is the value of the stock or product that remains at the end of an accounting period
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The ending inventory refers to the final value of products held by a company at the end of a financial period such as the accounting year.
Ending inventory is determined by the value of the beginning inventory, plus purchases less the cost of goods sold.
How it’s used
The ending inventory is always based on the market value - or lowest value of the goods that the company possesses. The cost of purchases made for the inventory is added to the value of the stock at the beginning of the chosen period.
Determining the value
The market value of goods created or distributed by a company is generally higher than the associated costs. However, this can change if the goods become outdated and experience depreciation and/or become obsolete.
In this case, the market value can fall below the cost of production for the goods, creating a loss in asset value.
Why ending inventory is important
It’s a good idea to keep track of your inventory over the entirety of the fiscal year, but ending inventory is particularly important to calculate. Not only in order to ensure your actual stocks match with your sales and purchases over the course of the the accounting period, but also because this is often required in the case of an audit.
Whether your ending inventory matches with your financial transactions can indicate how well your business has stuck to its budget and can be useful for determining whether there are any glaring problems with production costs.
It is also important to a business because ending inventory carries over to the new accounting period. An inaccurate measure of stock value would then continue to have financial implications into the new accounting period.
Ending inventory and Debitoor
Debitoor automatically updates your income and expenses as soon as you enter new transactions. This allows you to maintain a constant and immediate picture of your accounts. Create assets and track depreciation in one of our larger plans for an even more comprehensive overview.