Beginning vs. Ending Inventory Cost
Defining Beginning Inventory Cost
Beginning Inventory Cost is an inventory account balance at the start of an accounting period. Simply put, beginning cost is the total cost you have computed at the start of your business or the total amount of inventory cost computed before and after you have computed for the Ending Cost of the period (because the ending cost will turn out to be the beginning inventory cost of the next period).
Defining Ending Inventory Cost
Ending Inventory Cost is an inventory account balance at the end of an accounting period. To simplify, ending cost is the total cost after all transactions and adjustments had been taken into consideration at the end of the period. The Ending Inventory Cost will likewise be the beginning Inventory Cost in the next period.
Inventory Log - Beginning and Ending Inventory Cost
In the example above, you will see that the beginning Inventory Cost in Number 1 is 0 (zero) because the item is new to the system and that there were no recorded transactions such as stock transfer, stock adjustment, etc., that would state that the item has existing quantity in the inventory/warehouse. After the transaction which is Receive Order, the new Ending Inventory Cost is 100,000 which is computed as ((Unit Cost * Quantity) + Beginning Inventory Cost).
Now, you will notice in Number 2 that the Ending Inventory Cost of Number 1 is now the Beginning Inventory Cost of Number 2. After the transaction which is Delivery, the Ending Inventory Cost is 40,000 which is computed as ((Unit Cost * Quantity) – Beginning Inventory Cost).