Inventory is the lifeblood of most product-oriented businesses. That is, the cost of inventory can determine your profit margin. For this reason it is important to closely monitor the cost of goods sold. In order to determine the cost of goods sold you must also determine the opening and ending inventory levels as well as the value of purchases made over the time period.
Determine the value of purchases made over a certain time period. Let's say you purchased $100,000 worth of inventory over the past year.
Determine the ending value of inventory. This is the value of inventory at the end of the period. Let's say the ending value of inventory is $50,000.
Determine the cost of goods sold. This is the cost of inventory sold over the last year. Let's say you sold $150,000 worth of inventory over the past year.
Calculate opening inventory. Opening inventory = cost of good sold - inventory purchases + ending inventory. In this example, the calculation is: $150,000 - $100,000 + $50,000 = $100,000. This was the value of inventory at the beginning of the year.