Beginning inventory
Add purchases
Add freight-in and other acquisition costs
Subtract cost of goods sold
Subtract inventory shrinkage, damage, and obsolescence
Subtract returns to suppliers
Add purchase returns and allowances if previously deducted
Use physical count of remaining goods
Use inventory formula: Beginning inventory + Net purchases – Cost of goods sold = Ending inventory
Use periodic inventory records or perpetual inventory records
Apply valuation method: FIFO, LIFO, or weighted average
Adjust for lower of cost or market if required