What are the different inventory valuation methods?
The goal of inventory valuation is to assign a monetary value to inventory the company owns that has not yet been sold. There are generally four accepted inventory valuation methods: Specific Identification, First In, First Out (FIFO), Last In, First Out (LIFO) and Weighted Average Cost. Each has its own advantages and disadvantages, so be prepared to briefly speak to each.
"There are four widely accepted inventory valuation methods. The most clear cut is specific identification, where the cost of every item in inventory is specifically tracked. This method is best used when the company sells a low volume of high value items (such as rare cars). Next is First-In, First-Out, which presumes the first inventory purchased by the company is the first sold to the customer. Most companies use FIFO to value their inventory. Last-In, First-Out assumes the newest inventory in stock is the first sold. Finally, there's weighted average cost, which takes the cost of all products in inventory divided by the number of units. This method is used when the products a company sells are very similar."
The three most widely used methods for inventory valuation in accounting are First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and Weighted Average Cost. FIFO means that the goods should be sold in the order they were purchased. LIFO is the opposite of FIFO. Simply put, the goods purchased recently should be sold first while the goods purchased first should be sold last. WAC is the total cost of goods in inventory divided by the total units of goods
