Dear Hend,
First of all they will not give beginning inventory & Ending inventory both balance for your easy calculation they will always give Only one beginning balance or ending balance you need to consider beginning & ending balance according to carry forward years wise.
Example if in the question they only give ending inventory for 2 years and ask calculate inventory turn over ration for current year ?
2010 2011
Ending inventory 10,000 14,000
Note :
If Ending inventory is given they will ask about current year inventory turn over ration? or
If Beginning Inventory is given then they will ask Prior year inventory turn over ration?
Its very simple you need to just add beginning + Ending inventory & divided by 2 to get average inventory here we consider 10,000 as beginning inventory of 2011 because last year 2010 closing balance will be carry forward as a opening for current year 2011& current year 14000 is consider as Ending inventory Until the next year arrive.
Basically average inventory & average accounts receivable it's a part of formula for inventory turn over ration and accounts receivable turn over ration. When ever they asked this question they will always give 2 years data for One year calculation for average inventory or accounts receivable if they given 3 years they will ask 2 years average inventory.
Important thing is here you need to remember the calculation of average inventory or average accounts receivable
Formula
Average inventory = Beginning inventory + Ending inventory
2
Average Receivable = Beginning accounts Receivable + Ending accounts receivable
Thanks & Regards
Sumair Shaik
Accountant
United Arab Emirates
2
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