What is the change in inventories?

The meaning of inventory variation in accounting is the difference between the stocks (mercaderías, materials and other supplies) at the beginning of an accounting year and those that exist at the end of that year. In some way it deals with analyzing the variation of the inventory that a company has in its warehouse.

Inventories are the products or goods that a company manufactures or acquires with the purpose of being resold and whose sale is the main activity of the business. In the field of accounting The concept of stocks refers to goods that have not yet been sold, which remain in storage and are sought for immediate sale. As they have not yet been marketed, they have not generated any sales income for the company, although they have involved a cost for their manufacture or purchase.

Hence, it is necessary to regulate stocks to attribute the expense of stocks as they are sold, not when they are manufactured or bought. This regularization is obtained thanks to the variation in stocks.

How to calculate the change in inventories?

The formula for calculating the change in inventories, therefore, will be the following:

Stock change = Ending stocks - Beginning stocks

But previously it will be necessary to know the result of the final stocks that is obtained from this calculation:

Ending Stock = Manufactured Stock + Opening Stock - Sold Stock

With this, the variation of inventories in accounting can lead to two situations:

  • Decrease in warehouse stock: it happens when stocks at the end of the season are lower than at the beginning of the year. It occurs when the company manufactures or buys fewer goods than it sells.
  • Increase in inventory in the warehouse: occurs when the inventory is greater at the end of the year than at the beginning. It implies that the company has purchased or manufactured more products than it sells.

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