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'''Inventory valuation''', in accounting, refers to a methodology whereby '''inventory''' on hand is valued after a portion of it is sold or is otherwise removed.
There are four methods which are commonly used to value inventory: specific identification, FIFO (First In, First Out), LIFO (Last In, First Out), and average costing (which may be simple or weighted).
==Specific Identification==
Under this method, each inventory item is given a specific identification number, and when that item is sold it is removed from inventory.
This method is used only on large-ticket items which can be separately identified, such as houses and cars.
===Example===
The developer of '''Eagles Landing''', a subdivision, has completed three houses but has not yet sold them:
{| class="wikitable"
|-
! Address !! Cost
|-
| 101 Bald Eagle Boulevard || $150,000
|-
| 102 Golden Eagle Way ||$155,000
|-
| 103 Spotted Eagle Street || $159,000
|}
The developer's inventory would show $464,000 in housing inventory.
Then, the developer sells the house at 103 Spotted Eagle Street. The inventory would be reduced by $159,000 (the cost to build that house) for remaining inventory of $305,000. If the developer then completes a house at 104 Bald Eagle Boulevard for $150,000, the inventory is increased to $455,000.
[[Category:Accounting]]
There are four methods which are commonly used to value inventory: specific identification, FIFO (First In, First Out), LIFO (Last In, First Out), and average costing (which may be simple or weighted).
==Specific Identification==
Under this method, each inventory item is given a specific identification number, and when that item is sold it is removed from inventory.
This method is used only on large-ticket items which can be separately identified, such as houses and cars.
===Example===
The developer of '''Eagles Landing''', a subdivision, has completed three houses but has not yet sold them:
{| class="wikitable"
|-
! Address !! Cost
|-
| 101 Bald Eagle Boulevard || $150,000
|-
| 102 Golden Eagle Way ||$155,000
|-
| 103 Spotted Eagle Street || $159,000
|}
The developer's inventory would show $464,000 in housing inventory.
Then, the developer sells the house at 103 Spotted Eagle Street. The inventory would be reduced by $159,000 (the cost to build that house) for remaining inventory of $305,000. If the developer then completes a house at 104 Bald Eagle Boulevard for $150,000, the inventory is increased to $455,000.
[[Category:Accounting]]