Ending Inventory refers to the merchandise that a company has on hand at the end of an accounting period. This includes finished goods, raw materials, and work-in-progress. The value of ending inventory is important because it is used to calculate the cost of goods sold (COGS), which is a key metric in determining a company's profitability.
Inventory is typically valued using one of two methods: the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method. Under the FIFO method, the merchandise that was purchased first is assumed to be the first to be sold, and the ending inventory consists of the merchandise that was purchased last. Under the LIFO method, the opposite is true - the merchandise that was purchased last is assumed to be the first to be sold, and the ending inventory consists of the merchandise that was purchased first.
The value of ending inventory can also be affected byWrite-downs. A write-down is an adjustment to the value of inventory that is used to bring the inventory value in line with its current market value. This is done when the inventory is no longer worth the price at which it was originally valued. For example, if a company has raw materials that are valued at $100, but the current market value of those raw materials is only $50, the company would need to write down the value of the inventory by $50.
The value of ending inventory can have a significant impact on a company's financial statements and tax liability. For this reason, it is important for companies to keep accurate records of their inventory levels and to value their inventory properly.
What is ending inventory in FIFO? In a FIFO inventory system, the ending inventory is the value of the oldest products in the inventory. This method is used to value inventory because it assumes that the products that have been in the inventory the longest are the ones that will be sold first.
To calculate the ending inventory in a FIFO system, you need to start with the beginning inventory and add any purchases that have been made during the period. From this total, you will subtract any sales that have been made. The resulting figure is the ending inventory.
For example, let's say that a company has a beginning inventory of 100 widgets that cost $10 each. During the period, the company purchases 200 widgets at $11 each and sells 150 widgets. The ending inventory would be calculated as follows:
Beginning inventory: 100 widgets x $10 each = $1,000
Purchases: 200 widgets x $11 each = $2,200
Sales: 150 widgets x $10 each = $1,500
Ending inventory: $1,000 + $2,200 - $1,500 = $1,700
In this example, the ending inventory consists of the 100 widgets from the beginning inventory, plus the 200 widgets that were purchased during the period, minus the 150 widgets that were sold. The ending inventory is valued at the cost of the oldest products in the inventory, which in this case is $10 per widget. What does LIFO stand for? LIFO stands for "Last in, First out". It is an inventory valuation method which assumes that the most recent items added to inventory are the first ones sold. What is the double entry for inventory? Inventory is recorded as an asset on the balance sheet. The double entry for inventory is a debit to the inventory account and a credit to the cash or accounts receivable account. Where is closing inventory shown? The closing inventory is shown in the balance sheet under the heading "Current Assets."
How do you do LIFO and FIFO? There are two main types of inventory valuation methods: last in, first out (LIFO) and first in, first out (FIFO).
LIFO accounting assumes that the most recent products purchased are the first products sold. Therefore, the cost of goods sold is based on the most recent prices paid for inventory. The benefit of using the LIFO method is that it generally results in a lower cost of goods sold expense, which means a higher net income.
FIFO accounting assumes that the first products purchased are the first products sold. Therefore, the cost of goods sold is based on the prices paid for the earliest inventory. The benefit of using the FIFO method is that it more accurately reflects the actual flow of inventory.