Formula for Calculating Opening Stock

What is Opening Stock?

Opening Stock is defined as the amount or quantity of goods available to the business for sale at the beginning of the accounting period. The opening stock for the current period is usually derived from the stock available after the conclusion of sales from the last accounting period, based on the nature of the business. It is the quantity and value of raw materials, work-in-progress, and finished goods that are available at the beginning of each accounting year with the entity....

Types of Opening Stock

Inventory depends upon the nature of the business, the entity works in. An entity that is in the manufacturing sector will have different types of inventory as compared to an entity that is in the service industry. Types of opening stocks can be studied under three major heads:...

Formula for Calculating Opening Stock

Opening Stock = Raw Material Cost + Work in Progress Values + Finished Goods Cost...

Examples of Opening Stock

Example 1:...

Advantages Of Opening Stock

1. Demand Forecasting: Holding opening stock can help an organisation to meet its fluctuating market demands and cater to its customer’s needs. Opening stock makes sure that some extra quantity is available with business for smoother trading operations....

Limitations of Opening Stock

1. Holding Cost: Holding inventory leads to increased costs as it requires space and requires proper maintenance by involving proper human resource some costs involved with maintain opening stock are warehouse rent, interest on the money value of inventory, Salary to storekeeper or warehousing team etc....

Important Points Related to Opening Stock

1. Proper Accounting Policies to be Followed: For the calculation of opening stock several amendments in guidelines, accounting assumptions, and accounting standards set out different methodologies. Entity should have a key understanding of there applicable financial reporting framework and should follow those principles uniformly....

Conclusion

Opening Stock can be defined as goods which an organisation holds at the beginning of any accounting period. There are three major bifurcation of opening stock, they can be categorised as raw materials, work in progress, finished goods. As per the accounting records and availability of data, opening inventory can be calculated with the help of different formulas, however entity should understand there applicable financial reporting framework. Holding inventory helps an organisation to mitigate the fluctuating needs of its customers. However, holding opening stock has its own cost of holding. Opening stock is an essential element of an entity’s business, hence it should be managed carefully in order for there true and fair reporting and disclosures....