 If you're running an online store, then it's essential to understand how to calculate your ending inventory. This figure determines the cost of goods sold and can significantly impact your business's profitability. In this blog post, we'll discuss the different methods of calculating ending inventory and how to use the FIFO method in practice. We'll also provide some tips for ensuring accurate calculations. So, let's get started!

### What Is Ending Inventory, And Why Do You Need To Calculate It For Your Online Store?

Your ending inventory is the value of the goods and materials you have on hand at the end of an accounting period. This figure is important because it calculates the cost of goods sold (COGS). The COGS figure, in turn, determines your business' profitability.

It would help to calculate the ending inventory for your online store because it's a crucial part of the COGS calculation. If you don't calculate ending inventory accurately, your COGS figure will be off, which could lead to inaccurate profitability reports.

### The Different Methods Of Calculating Ending Inventory

There are several different methods that you can use to calculate ending inventory. The most common methods are FIFO, LIFO, and weighted average.

#### FIFO (First-In, First-Out)

The FIFO method is the most commonly used method for calculating ending inventory. Under this method, you assume that the first goods or materials you purchase are the first ones you sell.

To calculate ending inventory using the FIFO method, use the last unit price of the units purchased by the unsold items.

#### LIFO (Last-In, First-Out)

The LIFO method is the second most commonly used method for calculating ending inventory. Under this method, you assume that the last goods or materials you purchased are the first ones you sell.

To calculate ending inventory using the LIFO method, you subtract the value of all the goods and materials you've sold from the value of all the goods and materials you have on hand.

#### Weighted Average

The weighted average method is a less common method for calculating ending inventory. Under this method, you take the average cost of all the goods and materials you have on hand.

To calculate ending inventory using the weighted average method, you add the value of all the goods and materials you have on hand and then divide by the number of items.

#### Specific Identification

The specific identification method is the most accurate method for calculating ending inventory. Under this method, you track the ending inventory of each item in stock.

Calculating ending inventory using the specific identification method is to identify the unsold items and the corresponding unit price specifically.

### How To Use The FIFO Method To Calculate Your Online Store's Ending Inventory

Now that we've gone over the different methods of calculating ending inventory, let's take a closer look at how to use the FIFO method in practice.

To calculate ending inventory using the FIFO method, you'll need to know the following information:

- The value of all the goods and materials that you have on hand

- The value of all the goods and materials that you've sold

To get this information, you'll need to track your inventory levels carefully and keep detailed sales records. Once you have this information, you can use the following formula to calculate the ending inventory:

Ending Inventory = Value of Goods on Hand - Value of Goods Sold

## Tips For Ensuring Accurate Calculations

There are a few things that you can do to make sure that your ending inventory calculations are as accurate as possible:

#### Use the specific identification method if possible

This is the most accurate method, but it can be time-consuming. This method is usually used by businesses that sell high-value items (like cars or jewelry).

#### Track your inventory levels carefully.

You need to know how many units of each item are on hand to calculate ending inventory accurately. This means tracking your inventory levels carefully and keeping detailed records.

#### Use Inventory Softwares

Many software programs can help you to track your inventory levels and sales. This can make it easier to keep accurate records and ensure that your ending inventory calculations are correct.

##### Sample of Inventory software are:

inFlow Inventory Software

inFlow can help track your inventory levels, sales, and customers. It includes features like barcode scanning, order tracking, and reporting.

Fishbowl Inventory

Fishbowl is an inventory management software with features like barcode scanning, manufacturing, and purchasing.

QuickBooks Inventory Software

QuickBooks is accounting software that includes invoicing, tracking inventory levels, and sales.

Zoho Inventory Software

Zoho Inventory is a cloud-based software with features like order management, barcode scanning, and reporting.

### Examples Of How To Use The FIFO Method In Practice And Other Methods

Here are a few examples of how you can use the FIFO method to calculate ending inventory for your online store:

Scenario # 1: FIFO Method

There were three units of stocks: 25 units of A at \$5 each, 30 units of B at \$5.15, then 15 units of C at \$5.35. The sold units are 50 units. How much is the ending inventory using the FIFO method?

To ending inventory is \$178.75 (15 units @\$5.35+5 units @\$5.15)

Scenario # 2 LIFO

There were three units of stocks: 25 units of A at \$5 each, 30 units of B at \$5.15, then 15 units of C at \$5.35. The sold units are 50 units. How much is the ending inventory using the LIFO method?

The ending inventory is computed using the unit price of A at \$5 each since the total unsold units are 20 units. Therefore, the ending inventory is \$100.

Scenario # 3 Weighted Average

There were three units of stocks: 25 units of A at \$5 each, 30 units of B at \$5.15, then 15 units of C at \$5.35. The sold units are 50 units. How much is the ending inventory using the

To compute the ending inventory is to add the total cost of goods available for sale, divide by the total units, then multiply by the difference between the total cost of goods available for sale and the cost of goods sold.

Therefore, the ending inventory using the FIFO method is computed as \$358.25 (25@\$5+30@\$5.15+15@\$5.35)/70 units= \$5.12 per unit, then multiplied by 20 units unsold.

So, the ending inventory is \$102.36

### Conclusion

We hope this blog post has helped you understand the different methods of calculating ending inventory and how to use the FIFO method in your online store. If you have any questions, or need help getting started, don't hesitate to contact us. We're happy to help!

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