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How to calculate ending inventory?

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The cost of goods sold is determined using different accounting methods for each company. The identification method can be used to assign cost to goods sold. As a result, the cost of every item must be tracked while keeping inventory. Businesses that sell expensive merchandise often use this method due to the fact that the goods are easy to keep track of. The one drawback is that this method doesn’t work well for retailers with high volume products. Ending inventory is calculated as the total cost of every asset left at the end of the accounting period. Calculating ending inventory is fairly straight forward.

Step 1

Keep a log of every product that is in your ending inventory. The list from the previous period can be used as a reference. If you sell automobiles, the product types might be trucks, cars, and SUVs.

Step 2

Then add up the units for each product at the end of the period. For example, you may have 20 trucks, 20 cars, and 10 SUVs on the lot when you do inventory. It is important to make sure that you do an accurate count and it is recommended that you should count everything twice.

Step 3

Then you need to find the cost of every product. This method means that the company needs to track how much every product costs that is in inventory. If we use the example above, let’s assume that you paid $25,000 for each truck, $20,000 for each car, and $25,000 for each SUV.

Step 4

The final step is to calculate the ending inventory. You can start by multiplying the amount of each vehicle/product by its costs. Finally you will add the amounts together. In the example above the ending inventory is $1,150,000 [($25,000 X20) + ($20,000 X 20) + ($25,000X10)=$1,150,000].

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