If you’re a business with physical inventory, it’s essential to work out your average inventory amount. It’s helpful in gaining an accurate representation of your inventory values and helps with financial reporting, cost management, and optimising inventory levels.
Here’s everything you need to know about working out your average inventory, including an easy-to-use calculator and a manual formula you can follow.
Average inventory refers to the average value of a business's inventory during a specified time period that helps determine the mean inventory value. By calculating the beginning and ending inventory balances, businesses can better represent their inventory's value throughout a specified timeframe.
Calculating average inventory is crucial in financial reporting, including preparing balance sheets and income statements. By knowing the average inventory value, businesses can accurately assess their current assets and the cost of goods sold.
Average inventory also assists in effective cost management. By understanding the average value of their inventory, businesses can make informed pricing decisions, identify trends in inventory costs, and optimise their inventory levels using this information.
Using QuickBooks' average inventory calculator is straightforward. You will need to have business records or financial statements detailing your inventory at the beginning and end of a specified period. Then, simply input these figures into our calculator, and you will receive your average business inventory - it’s really that simple.
The formula for calculating average inventory is:
average inventory = (Beginning Inventory + Ending Inventory) / 2
Let's look at an example:
Your beginning inventory balance is $10,000, and your ending inventory balance is $15,000.
average inventory = ($10,000 + $15,000) / 2
average inventory = $25,000 / 2
average inventory = $12,500
In this example, the average inventory value is $12,500. Use the same process to work out your business’s average inventory.
Calculating average inventory is simple, especially when using accounting software like QuickBooks. If you want to determine your average inventory manually, here are the steps you need:
All businesses that hold stock need to determine their average inventory. It helps to create accurate financial reports, allows them to assess their assets, and practise effective cost management.
QuickBooks financial reporting software helps you determine the values you need to calculate your average inventory formula. This includes your inventory valuation summary, inventory stock status by item, or the inventory valuation detail report.
Our financial reporting software provides information on inventory balances at specific points in time, allowing you to obtain the necessary beginning and ending inventory values for the formula we’ve given.
QuickBooks inventory management software also allows you to track and manage your inventory by recording purchases, sales, and adjustments. It records inventory quantities and values, which are essential for calculating average inventory.
Sign up for QuickBooks Online to start using inventory and reporting software today.
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