In January, for example, even though Sunny had purchased $4,500 on the first day of business, January 1, 2010, as listed on the January sample balance sheet, this amount does not represent the beginning inventory balance since the ending inventory as of Decemwas zero. This inventory balance will remain the same throughout the year, as new products purchased are recorded in the purchases account, and later adjusted to inventory based on a new inventory count at year end. Consequently, the beginning balance for inventory, or accounts receivable, or equity, or any other real (balance sheet) account is always the same as the balance as of the end of the prior year, carried forward as the beginning balance in the new year.įor periodic inventory, this is important because the ending inventory balance was adjusted to a physical count last year, and carried forward to the beginning inventory balance. * A Note on Beginning Balances* In accounting, the beginning balance always refers to the balance as of the beginning of the year before any new transactions for the year are recorded. The following formula is used to determine inventory cost of goods sold: Beginning Inventory + Purchases – Ending Inventory = COGS Periodic Inventory and Inventory Cost (Cost of Goods Sold) New inventory purchases are recorded in the “purchases” account, and at year end an inventory count is taken to determine the ending inventory balance and the cost of goods sold. Periodic inventory maintains the beginning inventory balance throughout the year. Under the periodic inventory system, the amount of inventory on hand is determined periodically, usually once a year.
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