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    Feb042011

    What is beginning inventory?

    Beginning inventory is the recorded cost of inventory in a company's accounting records at the start of an accounting period. The beginning inventory is the recorded cost of inventory at the end of the immediately preceding accounting period, which then carries forward into the start of the next accounting period.

    Beginning inventory is an asset account, and is classified as a current asset. Technically, it does not appear in the balance sheet, since the balance sheet is normally created as of a specific date, which is normally the end of the accounting period, and so the ending inventory balance appears on the balance sheet. However, as just noted, beginning inventory is the same as the ending inventory from the immediately preceding accounting period, so it does appear in the balance sheet as the ending inventory in the preceding period.

    The primary use of beginning inventory is to serve as the starting point of the cost of goods sold calculation for an accounting period, for which the calculation is:

    Beginning inventory + Purchases during the period - Ending inventory = Cost of goods sold

    A secondary use of beginning inventory is for the calculation of average inventory, which is used in the denominator of a number of performance measurements, such as the inventory turnover formula. These measurements can use just the ending inventory figure, but using the beginning and ending inventory balances to derive an average inventory figure for an accounting period tends to generate a smoothing effect that counteracts an unusually high or low ending inventory figure.

    Related Topics

    Accounting inventory methods
    How do I estimate ending inventory?
    How do I reconcile inventory?
    What is an inventory reserve?
    What is the effect of overstated ending inventory?

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    Reader Comments (1)

    So, what I understanding is that, if the beginning of inventory is understated, it would not effects the total asset because total assets records ending inventory? is that right?

    November 13, 2012 | Unregistered CommenterTram
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