Beginning Inventory can be defined as the recorded cost of the inventory at the beginning of every accounting period. In other words beginning inventory can be defined as the cost of ending inventory of the end of the preceding accounting period that is directly forwarded as the beginning inventory of the next accounting period. In accounting terms beginning is an asset account and treated as a current asset. However the beginning inventory is not declared on the balance sheet but technically it appears on balance sheet as a form of ending inventory of the immediately preceding period and is the beginning inventory of the coming accounting period.
Beginning Inventory helps the management to find out the cost of goods sold at the beginning of every accounting period. The formula of cost of goods sold shows the use of beginning inventory. This can be shown as under:-
Cost of goods sold = Beginning Inventory + Purchase during the period – ending inventory
Another most important use of the beginning inventory is in the calculation of the ending inventory. The average inventory is an important indicator and used in various calculations as a denominator. The average inventory is used to measure the inventory turnover ratio.
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