The final inventory is the one that is recorded at the end of an accounting year, after controlling the inputs and outputs of stocks.
In other words, it is the inventory that is calculated at the end of the fiscal year.
It is recommended to read also ↓Initial inventory Inventory control
Ending inventory in accounting
Determining the inventory, be it initial or final, is crucial in order to plan the present and future accounting year.
On the one hand, if we overestimate the inventory we have, it is possible that at some point during the year we will run out of stock, and we may have to pause our activity partially or even completely.
On the other hand, if we underestimate the stock, we make the mistake of supplying more than what we need. This would lead to using the company's resources inefficiently, since we are allocating them to a department that does not need them, while it is likely that another will need those resources.
Ending inventory calculation
The ending inventory calculation is done using the following formula:
Inv. Final = Inv. Initial + Cost of stocks acquired - Cost of stocks sold
In this way, in order to find out the ending inventory, it is essential to know the value of the beginning inventory for the current fiscal year plus the variations in sales and inventory purchases.
Ending inventory practical example
Given a company that has a 20X1 beginning inventory of € 6,000, and purchases and sales valued at € 2,000 and € 3,000 respectively, what will the ending inventory figure be for 20X1?
Applying the formula it would be such that:
Ending inventory = 6,000 + 2,000 - 3,000 = 1,000
Then the beginning inventory for the year 20X2 has a value of € 1,000. Then, the inventory belonging to the end of year 20X1 has a value of € 1,000, after adding the purchases to the initial inventory and subtracting the sales made during the accounting year 20X1.