How is ending inventory calculated?

Ending inventory is calculated by taking the total inventory available for sale and subtracting the cost of goods sold (COGS). The formula used, "Goods Available for Sale - Cost of Goods Sold," clearly demonstrates how the ending inventory reflects what is left after accounting for the products that have been sold during the accounting period.

Goods Available for Sale includes both the beginning inventory and purchases made throughout the period, providing a complete picture of the total inventory. By deducting the COGS from this total, you arrive at the value of inventory that remains unsold at the end of the period. This calculation is crucial for accurate financial reporting, influencing both income statements and balance sheets.

While other choices incorporate elements related to inventory, they do not accurately reflect the standard method of calculating ending inventory. For example, simply adding beginning inventory and any additions does not account for sales that have occurred. Additionally, options that mention units or the cost of goods sold without referencing the correct methodology also miss the fundamental relationship between available inventory and sales.