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buddy1955
February 11, 2025
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Beginning and ending inventory journal entries . . . have always confused me

  • February 11, 2025
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Hello - I have a small antique space in an antique mall. Every year at tax time I am concerned that I am not entering my opening and closing inventory values correctly. I had reconciled my opening inventory in early 2024 and have calculated my closing inventory by the appropriate formula Opening Inv (2024) + Inv Added (in 2024) - COGS (in 2024) = Ending Inventory

My reconciled opening Inventory for 2024 is $10,344.64

My Inventory added in 2024 is = 8864.33

My COGS for items sold in 2024 =$5938.25

My unreconciled inventory (through physical count) = $13270.64

 

So first, what is my Opening Inventory journal entry for $10,344.64

Next, what is my Closing Inv (before physical inventory count) for $13,270.64

Finally, after I perform my physical inventory for 2024 ending inventory, how do I journal an increase or decrease based upon that. My inventory level looks like it is actually = +$287.55

 

Thank you for any help - I really appreciate it,

Buddy1955

Best answer by Rainflurry

@buddy1955 

 

It's understandable for this journal entry to be confusing.  You're not an accountant (right?), you run an antique shop, so the fact that you know as much as you do is impressive.

 

"I had reconciled my opening inventory in early 2024 and have calculated my closing inventory by the appropriate formula Opening Inv (2024) + Inv Added (in 2024) - COGS (in 2024) = Ending Inventory"

 

Your 2024 opening inventory ($10,344.64) should be the same as your 2023 ending inventory.  That should have been entered in QB as of 12-31-23 for tax purposes.  Do you not have that?  If not, what amount is showing in QB as of 12-31-23?  What is your ending inventory on your 2023 tax return?   

 

Technically, the correct formula is Opening Inventory + Purchases - Ending Inventory = COGS.  COGS is what you're trying to determine.  What you should know is your opening and closing inventories based on a physical count and how much inventory you purchased in 2024.  There are some variations on this calculation based on how you record your purchases.  For example, some people record the purchases to inventory instead of purchases.  That's fine, it just increases your beginning inventory balance (instead of increasing purchases) but you end up with the same COGS either way.

 

Ideally, your yearly opening inventory should be in QB ($10,344.64 in 2024 for this example).  Then, you can create this journal entry: 

 

 DebitCredit
Inventory (ending)13,270.64 
COGS (to balance)5,938.33 = (10,344.64 + 8,864.33 - 13,270.64) 
     Inventory (beginning) 10,344.64
     Purchases (to close) 8,864.33

 

As a reminder, you need to take a physical count before you can make this entry.  The IRS requires it.  You don't calculate ending inventory based on COGS, you calculate COGS based on ending inventory.  

 

1 reply

Rainflurry
RainflurryAnswer
February 12, 2025

@buddy1955 

 

It's understandable for this journal entry to be confusing.  You're not an accountant (right?), you run an antique shop, so the fact that you know as much as you do is impressive.

 

"I had reconciled my opening inventory in early 2024 and have calculated my closing inventory by the appropriate formula Opening Inv (2024) + Inv Added (in 2024) - COGS (in 2024) = Ending Inventory"

 

Your 2024 opening inventory ($10,344.64) should be the same as your 2023 ending inventory.  That should have been entered in QB as of 12-31-23 for tax purposes.  Do you not have that?  If not, what amount is showing in QB as of 12-31-23?  What is your ending inventory on your 2023 tax return?   

 

Technically, the correct formula is Opening Inventory + Purchases - Ending Inventory = COGS.  COGS is what you're trying to determine.  What you should know is your opening and closing inventories based on a physical count and how much inventory you purchased in 2024.  There are some variations on this calculation based on how you record your purchases.  For example, some people record the purchases to inventory instead of purchases.  That's fine, it just increases your beginning inventory balance (instead of increasing purchases) but you end up with the same COGS either way.

 

Ideally, your yearly opening inventory should be in QB ($10,344.64 in 2024 for this example).  Then, you can create this journal entry: 

 

 DebitCredit
Inventory (ending)13,270.64 
COGS (to balance)5,938.33 = (10,344.64 + 8,864.33 - 13,270.64) 
     Inventory (beginning) 10,344.64
     Purchases (to close) 8,864.33

 

As a reminder, you need to take a physical count before you can make this entry.  The IRS requires it.  You don't calculate ending inventory based on COGS, you calculate COGS based on ending inventory.  

 

    B
    buddy1955Author
    February 14, 2025

    Thank you so much! I really appreciate your guidance and kind response. I am not an accountant but run my modest business since retired. I do have the closing inventory from 2023 and it matches the opening entry for 2024.

    I think I'm ready for tax season!

    Buddy1955

     

     

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