What is the beginning inventory? (definition, characteristics and how to calculate it)

The Initial inventory, is the one that represents the value of the stock of merchandise approximately on the date where the accounting period began.

This is an account that is opened once the inventory control It is carried out based on speculative procedures and they do not have movements again until the end of the accounting period when it is closed with a charge to sales cost or as profits and losses directly.

This inventory refers to one of the assets with the highest costs that a business can have, in case it is not handled with the greatest of care and that it adjusts to a certain sales behavior.

In that case, it may be very important to make a favorable criterion to determine the diversity of its breadth, its depth and the type of business carried out by producers and suppliers, among others.

Characteristics of an initial inventory

In-process inventory is work that initiates manufacturing production in an organization, but has not yet been completed. This system is of great importance for accounting departments, due to the value of Inventory in process that must be taken into account in the same way as raw materials and the products that are already finished. Among the most relevant characteristics are:

Production process

These manufacturing processes contain certain basic phases such as the following:

• Raw materials are purchased from suppliers and are received in the company's inventory or by the logistics team.
• As production takes place, materials are moved out of inventory and used in production.
• Lastly, the finished products are completed to be ready for outbound logistics and business procedures.
• Between raw materials and finished products, inventory that is in process is in different stages of development.

Costs

Organizations should track work-in-process separately from raw Materials and the finished products, this is due to the responsibility they have regarding the manifestation of the costs that is generated during the procedure of the financial statements.

The inventory costs in process have to be calculated depending on the value of the materials and the production costs. Direct materials, labor and general industry expenses are included in the valuation of inventories that are in process.

Valuation approach

Organizations determine the methods that evaluate inventory that is used in inventory accounting at different stages. These methods can be classified into:

• FIFO: FIFO means that the materials used within the production are valued by using the received materials.
• LIFO: LIFO means that recently received materials are counted as the first to be used.

These two methods have great advantages, but LIFO is becoming increasingly popular, reducing the tax burden immediately during the inflation stages.

Completion process

One of the most difficult factors in the inventory valuation process is the accounting that makes the changes that occur from the development work period to the production phase finished.

Although organizations apply different methods, the intention is to incorporate additional materials and labor costs to those already represented to assess the work procedure and match the cost final.

How to calculate the starting inventory?

In order to calculate this type of inventory, the steps explained below must be followed:

• The first thing to do is determine the cost of the goods that have been sold within the period using the accounting records that represent the total cost of products that were sold during the accounting period.
• The approximate ending inventory balance and the number of new inventory that was purchased and acquired within the time period should be located in the records.
• The ending inventory is then added to the cost of goods already sold.
• Finally, the amount of inventory that is purchased is subtracted from the results that are acquired when starting inventory is calculated.

The Initial inventory refers to the book value that is recorded of the inventory of a certain company at the beginning of an accounting period and is based on the cost that It is recorded from the inventory when the accounting period ends followed by the previous one, so that it can be carried over to the beginning of the next period accountant.