Average inventory calculator & formula

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. 

How to use the calculator 

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. 

What is average inventory? 

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.

Average inventory formula

The formula for calculating average inventory is:

Average inventory = (Opening inventory + Closing 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. 

How to calculate 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:

• Determine the inventory balance at the beginning of the period using your business records or financial statements.

• Determine the inventory balance at the end of the period - again by looking at your records and statements. 

• Add the beginning and ending inventory balances together.

• Since you are calculating the average, dividing the sum of the beginning and ending inventory balances by two will give you the average inventory value.

How QuickBooks can help 

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 practice 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.

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Frequently asked questions

Can QuickBooks calculate average inventory?

The QuickBooks Online Plus plan provides inventory tracking features and reports that can assist in determining the values you need for working out your average inventory calculations. By generating inventory reports and using the data provided, you can manually apply the average inventory formula or use the QuickBooks average inventory calculator to determine your results.

Why is calculating average inventory important?

Calculating your average inventory is essential. It helps in creating accurate financial reports by determining the value of inventory on hand and the cost of goods sold. This information is crucial for preparing financial statements such as balance sheets and income statements. 

Determining your average inventory also helps with cost management, as it can help you to evaluate inventory costs, identify trends, and make effective pricing decisions.

Which QuickBooks reports can help with average inventory calculations?

QuickBooks Online provides you with a Stock Take Worksheet that can assist in average inventory calculations.

QuickBooks’ StockTake Worksheet provides information about the quantity and value of each item in your inventory. By reviewing this report, you can extract the necessary data to calculate the average inventory manually.

By using this report and the data provided within QuickBooks, you can gather the inventory balances you need to use our average inventory calculator.

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