The 13 point average for inventory for the calendar year 2012 would be the sum of the inventory amount at December 31, 2011 plus the 12 end-of-the-month amounts in 2012 divided by 13.

The reason for using these 13 dates is to develop an average for the year that considers every month's average inventory. This is much preferred over an annual average that is based on just two points: the amount of inventory at December 31, 2011 plus the inventory amount at December 31, 2012 divided by 2. By using 13 points throughout the year, seasonal variations will be included. Using only the end of year point for two years is generally not indicative of the inventory levels in the months throughout the year.

The 13 point average is also useful for determining other annual averages, such as accounts receivable, assets, and so on. With the use of computers, we can easily improve upon the 13 point average by using 365 points during the year.

Take our Financial Ratios Exam.

Learn Accounting: Gain unlimited access to our seminar videos, flashcards, visual tutorials, exams, business forms, and more when you upgrade to PRO.