What does beginning inventory consist of?

Beginning inventory is composed of the total cost of goods that a business has on hand at the start of a new accounting period. This includes all items, whether they are raw materials, work in progress, or finished goods that are ready to be sold. Understanding this concept is crucial for determining the cost of goods sold and managing stock effectively.

The selection of total cost reflects that the value of inventory is not just a count of physical items but also considers the monetary value assigned to them based on purchase cost. This information helps businesses evaluate their financial performance and inventory levels accurately.

In this context, options that limit inventory to only finished products or raw materials do not capture the comprehensive nature of beginning inventory, which can include both as well as other categories. Furthermore, items sold in the last fiscal year are not part of the beginning inventory, as they are no longer held in stock at the start of the new period.