Beginning and ending inventory journal entries . . . have always confused me

buddy1955 · ‎February 11, 2025

Hello - I have a small antique space in an antique mall. Every year at tax time I am concerned that I am not entering my opening and closing inventory values correctly. I had reconciled my opening inventory in early 2024 and have calculated my closing inventory by the appropriate formula Opening Inv (2024) + Inv Added (in 2024) - COGS (in 2024) = Ending Inventory

My reconciled opening Inventory for 2024 is $10,344.64

My Inventory added in 2024 is = 8864.33

My COGS for items sold in 2024 =$5938.25

My unreconciled inventory (through physical count) = $13270.64

So first, what is my Opening Inventory journal entry for $10,344.64

Next, what is my Closing Inv (before physical inventory count) for $13,270.64

Finally, after I perform my physical inventory for 2024 ending inventory, how do I journal an increase or decrease based upon that. My inventory level looks like it is actually = +$287.55

Thank you for any help - I really appreciate it,

Buddy1955

Rainflurry · ‎February 12, 2025

@buddy1955

It's understandable for this journal entry to be confusing. You're not an accountant (right?), you run an antique shop, so the fact that you know as much as you do is impressive.

"I had reconciled my opening inventory in early 2024 and have calculated my closing inventory by the appropriate formula Opening Inv (2024) + Inv Added (in 2024) - COGS (in 2024) = Ending Inventory"

Your 2024 opening inventory ($10,344.64) should be the same as your 2023 ending inventory. That should have been entered in QB as of 12-31-23 for tax purposes. Do you not have that? If not, what amount is showing in QB as of 12-31-23? What is your ending inventory on your 2023 tax return?

Technically, the correct formula is Opening Inventory + Purchases - Ending Inventory = COGS. COGS is what you're trying to determine. What you should know is your opening and closing inventories based on a physical count and how much inventory you purchased in 2024. There are some variations on this calculation based on how you record your purchases. For example, some people record the purchases to inventory instead of purchases. That's fine, it just increases your beginning inventory balance (instead of increasing purchases) but you end up with the same COGS either way.

Ideally, your yearly opening inventory should be in QB ($10,344.64 in 2024 for this example). Then, you can create this journal entry:

	Debit	Credit
Inventory (ending)	13,270.64
COGS (to balance)	5,938.33 = (10,344.64 + 8,864.33 - 13,270.64)
Inventory (beginning)		10,344.64
Purchases (to close)		8,864.33

As a reminder, you need to take a physical count before you can make this entry. The IRS requires it. You don't calculate ending inventory based on COGS, you calculate COGS based on ending inventory.

View solution in original post

Rainflurry · ‎February 12, 2025

@buddy1955

It's understandable for this journal entry to be confusing. You're not an accountant (right?), you run an antique shop, so the fact that you know as much as you do is impressive.

"I had reconciled my opening inventory in early 2024 and have calculated my closing inventory by the appropriate formula Opening Inv (2024) + Inv Added (in 2024) - COGS (in 2024) = Ending Inventory"

Your 2024 opening inventory ($10,344.64) should be the same as your 2023 ending inventory. That should have been entered in QB as of 12-31-23 for tax purposes. Do you not have that? If not, what amount is showing in QB as of 12-31-23? What is your ending inventory on your 2023 tax return?

Technically, the correct formula is Opening Inventory + Purchases - Ending Inventory = COGS. COGS is what you're trying to determine. What you should know is your opening and closing inventories based on a physical count and how much inventory you purchased in 2024. There are some variations on this calculation based on how you record your purchases. For example, some people record the purchases to inventory instead of purchases. That's fine, it just increases your beginning inventory balance (instead of increasing purchases) but you end up with the same COGS either way.

Ideally, your yearly opening inventory should be in QB ($10,344.64 in 2024 for this example). Then, you can create this journal entry:

	Debit	Credit
Inventory (ending)	13,270.64
COGS (to balance)	5,938.33 = (10,344.64 + 8,864.33 - 13,270.64)
Inventory (beginning)		10,344.64
Purchases (to close)		8,864.33

As a reminder, you need to take a physical count before you can make this entry. The IRS requires it. You don't calculate ending inventory based on COGS, you calculate COGS based on ending inventory.

buddy1955 · ‎February 14, 2025

Thank you so much! I really appreciate your guidance and kind response. I am not an accountant but run my modest business since retired. I do have the closing inventory from 2023 and it matches the opening entry for 2024.

I think I'm ready for tax season!

Buddy1955

Clara Cleverence

Alright, sounds like you're gettin into the weeds with accounting for your antique space. Let's handle your concerns one by one.

First off, for your opening inventory journal entry, you’re gonna debit your Inventory account by 10,344.64 and credit Retained Earnings (if you’re dealin with adjustments from the previous year) or Opening Inventory Balance. This sets the stage for the year by noting the assets you're starting with.

For the closing inventory before considering your physical count, subtract your COGS from the sum of Opening Inventory and Inventory Added: 10,344.64 + 8,864.33 - 5,938.25 = 13,270.72. This is your calculated closing inventory, but keep in mind that actual physical inventory counts can bring to light discrepancies known as shrinkage or overagges.

Now, post-physical inventory, your count is 13,558.19, indicating an inventory increase. You'll need to account for this by debiting your Inventory account by the difference (287.55) and crediting Inventory Adjustments or a similar account reflecting inventory adjustments. This corrects your inventory records to what's actually sittin there in your antique space.

Honestly, inventory management can be daunting, especially when numbers seem elusive, but you’re on teh right track by payin attention and reconciling accurately. If you’re feeling swamped, consider consultin with a Quickbooks expert - they could provide a more personalized walkthrough, ensuring your entries reflect your actual business activity.

Rainflurry

@Clara Cleverence

No one is “in the weeds” here. This is a solved thread from over 6 months ago and the OP has acknowledged that. BTW, crediting R/E is not appropriate and you credit COGS if your physical count is higher than expected.

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Beginning and ending inventory journal entries . . . have always confused me