Anyone who runs a business knows the importance of calculating closing stock. It is the amount of stock that is still available in the business to use or sell on a given date. It is usually calculated at the end of a day, week, month, and even a year.
The reason why it is essential to calculate closing stock is that it tells you how many goods you have leftover. This way, you will know how much old stock can be sold in the next period and will prevent you from ordering a bulk of new products, leading to surplus inventory.
Hence, calculating ending inventory is an integral part of every firm’s inventory management system.
How to Calculate Closing Inventory in Balance Sheet
A balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time. It is usually drawn up at the end of each financial period, although it may also be made monthly.
End-of-period inventory is a major item that must be calculated when drawing up a balance sheet. And it is found using a basic formula.
Ending inventory can be calculated in the following ways:
- Electronically (using a calculator, excel sheet, etc..)
- Automatically with an inventory management software
In any case, the same basic formula is used to make this calculation, which is as follows:
Closing Stock Formula (Ending) = Opening Stock + Purchases – Cost of Goods Sold
For small businesses that have a small catalog, it may be simple enough to calculate this amount manually. However, organizations with multiple categories, products, and units will find it more complicated to calculate this number.
Calculating Closing Stock with Serialized Inventory Management Solution
Thankfully, inventory management software in Dubai can make this task very simple. It can automatically calculate ending stock levels on a given date, and can even create visual comparison charts and breakdown tables with its smart reporting abilities.
The way that this works is that the ERP software has a record of all the incoming and outgoing products and units in the company. It automatically adjusts the catalog levels whenever stock is purchased or sold. With all this data automatically recorded in the POS software database, calculating end-of-period stock is as simple as generating an electronic report.
What Happens to Closing Stock in an ERP Software?
After the level of ending inventory is calculated in the balance sheet, the total is carried forward into the next financial period. That means that leftover products will be moved over into the next day, week, month, or year, to be sold or used.
Reliable ERP software will therefore help you calculate ending inventory easily while managing total stock levels in your business.