Definition
Inventory valuation is the money value a business assigns to the stock it holds, calculated by applying a costing method to the quantities on hand.
What is inventory valuation used for?
The value appears as an asset on the balance sheet, and the cost of stock sold becomes cost of goods sold, so the method chosen directly affects reported profit. Common methods are weighted average cost, FIFO and standard cost; IFRS doesn’t permit LIFO.
Example: 400 units on hand at a weighted average of USD 7.50 are valued at USD 3,000.
The valuation should agree with the inventory account in the general ledger. When stock reports and accounts disagree, it’s usually because stock and journals are posted separately. Read why your stock report and your accounts never agree.