Inventory valuation method


  • Stock 1
  • 2 methods of stock assessment
    • 2.1 Inbound method first, first issued
    • 2.2 The incoming method finally comes first
    • 2.3 Weighted average method


The term stock includes all the goods and materials that a company acquires for the purpose of selling or repair, and given the great importance of inventory, the science of inventory management is devoted to studying it in detail to determine the form of these goods and materials, and the percentage of stored goods.

Inventory is subject to a number of operations and stages between inventory, evaluation and inventory of inventory, forecasting the price of future inventory and other practices that relate to it, and this term is commonly used in various commercial establishments to refer to the goods owned by the facility and equipped for sale, while in industrial establishments it refers to the necessary materials For production, whether it is full production or under production.

Stock valuation methods

Inventory evaluation is intended to give the remaining valuable goods and services and price after completing the inventory process at the end of the period. One of the most important methods of stock assessment:

Incoming method first issued first

It is called (FIFO) , and in it the resort to start with the oldest stock balances in sale, to remain in the stores what was purchased at the end of the financial period, and this method can be used in all types of establishments, as they are considered as evaluation methods and not for storage, and are calculated as follows: (The cost of goods sold = the cost of salable goods - the cost of goods for the last period) .

This method is distinguished from others by including in its folds the cost of the most recent units that entered the store, and thus provides a detail about the convergence between their prices and market prices when initiating the preparation of the balance sheet.

Incoming method finally hardened first

It is called (LIFO) , and it depends on the principle of selling what finally entered the stores, whether they were purchased or produced, and it is indicated that this method is incompatible with the actual flow of goods in most cases, because whenever the company disposes of goods by selling, it must be solved goods Others have their place, and strict monitoring of profit is required, and they are calculated as follows: (cost of goods sold = cost of goods available for sale - cost of goods at the end of the period) .

This method is distinguished by making it homogeneous to the income statement, as this list is comprehensive of the latest selling prices and is compared to the latest prices with respect to the cost of the sold goods.

Weighted average cost method

In the event that the available goods are indistinguishable, then the weighted average cost method must be followed as a method for stock assessment, and it is possible to reveal the average cost of inventory by the following: (average unit cost = salable commodity cost / number of salable units) .

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