Browse Accounting

Inventory Valuation

Inventory valuation determines the cost assigned to inventory and cost of goods sold for financial reporting and analysis.

Inventory valuation is the accounting process of determining the monetary value assigned to inventory for financial reporting.

That valuation affects:

  • ending inventory on the balance sheet
  • cost of goods sold
  • gross profit and taxable income

Common valuation approaches

  • FIFO
  • LIFO where permitted
  • weighted average cost
  • specific identification for unique items

Why valuation matters

Different valuation choices can change reported profit, current assets, and tax outcomes even when the physical inventory is identical.

  • Inventory Accounting
  • Periodic Inventory System
  • Perpetual Inventory System
Revised on Monday, May 18, 2026