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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.
'''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).
There are various methods which are commonly used to value inventory: the most common are '''specific identification''', '''FIFO''' (First In, First Out), '''LIFO''' (Last In, First Out), and '''average cost''' (which may be either '''simple average''' or '''weighted average''').
==Specific Identification==
==Specific Identification==
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.
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.
==FIFO==
Under FIFO, items are removed from inventory based on the oldest purchase cost shown in the accounting records. This method generally tracks how inventory is actually sold or removed, especially for items with short shelf lives (such as produce).
The owners of '''God's World Garden Center''' sell '''SuperPlant''', a premium plant food. The current SuperPlant inventory as of the end of March is as follows:
{| class="wikitable"
|-
! Purchase Date !! Number !! Cost
|-
| January || 15 || $10
|-
| February || 15 || $12
|-
| March || 15 || $14
|}
The inventory value as of the end of March is $540.
On April 1 the Eagles Landing Garden Club purchases five units of SuperPlant. Under FIFO, five items are removed at $10 (the oldest cost), the remaining inventory is valued as follows: (5 units x $10) + (15 units x $12) + (15 units x $14) = $440.
[[Category:Accounting]]
[[Category:Accounting]]