Aron Govil
One of the most common questions in ecommerce accounting is how to calculate net change in inventory says Aron Govil. This article will give you a simple calculation formula for calculating your net change in inventory, which means subtracting last month’s ending inventory amount from this month’s beginning inventory amount. It also includes some guidance on what to do if you are trying to calculate this for multiple inventory locations.
This article is just based on my personal experience, so please check with your accountant before acting on it. Also, if you have to pay or receive inventory, I’d suggest using an excel spreadsheet instead of doing everything by hand. It will take you about 1 minute to set up and save you a lot of time and headache!
How to calculate the net change in inventory by Aron Govil:
-Last month’s ending inventory amount (from your last invoice)
+This month’s beginning inventory amount (from your first order)
=Net change in inventory for this month. You can also do the same thing by looking at your physical stock count sheet and calculating the net change in inventory that way.
If you’re trying to calculate net changes for multiple inventory locations:
-Last month’s ending inventory amount (from your last invoice) for each individual location
+This month’s beginning inventory amount (from your first order for each individual location)
=Net change in inventory with an explanation of where the inventory is going
-Last month’s ending inventory amount (from your last invoice) for each individual location
+This month’s beginning inventory amount (from your first order for each individual location)
=Net change in inventory for this month, which is the same as if you were to just use one location. I would recommend doing it the simpler way unless you have a reason to do otherwise. Example: Inventory Movement from Last Month to This Month Let’s say we sold 40 widgets last month and our physical stock count sheet shows that we had 30 widgets on hand at the end of last month. When we receive the next order, we see that we only ordered 25 new widgets this month.
Our net change in widget inventory would be:
– 30 (from invoices)
+ 25 (from orders)
= 5 new widgets on hand this month. Note: Make sure you’re using the beginning inventory amount, not the ending inventory amount, when calculating net change in inventory. This is because you want to know how much extra or less inventory you have compared to last month, and not your exact number of widgets left over last month.
FAQs:
“Can I use my ending inventory amount from last month?”
NO! You cannot use the ending inventory amount because this is how much inventory you had left over at the end of last month, not how much you received this month. So even if you didn’t sell any widgets, your ending balance would still be 30 widgets.
“What do I do if I don’t have an invoice or physical stock count sheet for one or more locations?”
If you are trying to calculate net change in inventory and only have the beginning inventory amounts for multiple locations but no invoices or physical stock counts, then simply estimate what the numbers would be if they were available. For example, let’s say all our orders were placed exactly 2 weeks apart. If we received an order this week and had nothing on hand, then we would need to know how much inventory we had 2 weeks ago (last month’s ending inventory). We could simply take the average of the beginning and ending numbers that we do have. This way, we still get a reasonable estimate for where our widget inventory is at without having to know the exact number for last month.
Conclusion:
Aron Govil says Inventory is one of the most common issues when it comes to ecommerce accounting blog, and since it doesn’t happen very often, a lot of people forget how to properly record it. Hopefully this article has given you some guidance on how to calculate net changes in inventory for your business.
If you liked what you read here, please consider subscribing! And if I can leave some free advice – get an excel spreadsheet so that everything is automatic. All you have to do is plug in numbers from boxes or look at a physical stock sheet! You will save so much time!
