Beginning inventory is an important metric – it’s needed to determine the cost of goods sold (COGS) for your company’s income statement. It’s also used to calculate key performance indicators (KPIs), including average inventory and inventory turnover, that give you important insights into how your business is performing.
While current assets usually appear on the balance sheet, beginning inventory does not.
That’s because balance sheets are created at the end of an accounting period so ending inventory is used to value inventory on the balance sheet.
So, how does your automotive dealership calculate beginning inventory?
How to calculate beginning inventory
There is an equation you can use to determine your beginning inventory for a given period. To calculate that number, you will need COGS, ending inventory and purchase values for the same period.
But so long as you have the ending inventory of the previous period, you can easily determine the beginning inventory of the next.
That’s because beginning inventory is the ending inventory of the previous year carried forward. Simply put – the beginning inventory is equal to the previous periods ending inventory.
Analyzing changes in beginning inventory
Changes in your beginning inventory can signal important changes in your business, especially in sales and operations.
If you see a decrease in beginning inventory period over period, it could mean that you have growing sales. If however, your sales aren’t growing (as signaled by flat or decreasing revenues), it could mean that there is an issue in your inventory management process or supply chain.
This would signal that your business is losing money because of poor organization and below-par operational processes.
On the other hand, increasing beginning revenues could be a result of increased stock on hand or slow sales.
Are you interested in learning more about beginning inventory, and why it’s so important to the success of your automotive dealership? Contact Pro Count West today. Our team of inventory professionals can help you analyze data changes and ensure that your records are providing you with the most accurate performance insights.