Inventory valuation refers to how you value your stock. It’s a very important aspect of a business as inventory can be the biggest asset of a company.
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An inventory valuation of a company helps to know the monetary value for items in their inventory. To ensure reliable financial records on inventory reports, careful calculation of them is important. The main aim of inventory valuation is to find the revenue. After deducting the expense of product sold from sales, gross profit is determined. Purchases plus opening stock minus closing stock are the cost of products delivered. The accurate value of the inventory measures the current assets, cash flow, shareholders’ or owners’ equity reported on the balance sheet.
Inventory valuation implies two main choices:
The cost method you use to value your goods (standard, FIFO, avco)
The way you record this value into your accounting books (manually or automatically)
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