Inventory is an Asset of the business and its value is reflected as a General Ledger account.

Beginning inventory refers to its value at the beginning of the Accounting Period.

Although the balance of Inventory increases with purchases, the Beginning Inventory remains unchanged during the Accounting Period and is reset at the close of the Accounting Period which then becomes the new Beginning Inventory.

Purchases are typically recorded as transactions by a Debit to the General Ledger account Inventory and a Credit to an account such as Accounts Payable or Regular Checking when paid by check from the Cash Disbursements journal.

The Net Purchases are the items you've bought and added to your inventory count together with any direct costs associated with the purchases such as freight, commissions, etc.

The formula for calculating Ending Inventory is: Beginning Inventory + Net Purchases – COGS = Ending Inventory. Your Beginning Inventory is the last period's Ending Inventory. The Net Purchases are the items you've bought and added to your inventory count.

A common practice is to take a physical inventory cost of goods on hand and value the Ending Inventory as the quantity on hand multiplied by its cost using the FIFO, LIFO or Average Cost valuation method.

This gives the most accurate measure of the value of Inventory and accounts for loss due to shortage.

So in summary, Cost of Goods Sold is equal to the value of beginning inventory plus purchases minus ending inventory.

Knowing the COGS allows us to evaluate the Gross Profit on Sales.