Inventory valuation refers to the process of assigning a monetary value to the goods and materials held by a company for the purpose of resale or production. This valuation is important for financial reporting purposes, as it impacts a company’s balance sheet and income statement. The method of inventory valuation used can have a significant impact on a company’s financial statements, as different methods can result in different values for the same inventory. Common methods of inventory valuation include first-in, first-out (FIFO), last-in, first-out (LIFO), and weighted average cost. The choice of method can depend on a variety of factors, including the nature of the inventory, the company’s tax situation, and the company’s financial goals. Accurate inventory valuation is essential for effective financial management, as it allows companies to make informed decisions about pricing, production, and investment.
