Inventory Valuation Methods

Inventory valuation methods determine how a business values its stock of goods for accounting and financial reporting. The main methods include: 1. **FIFO (First-In, First-Out)**: The oldest items are sold first, reflecting current market value. 2. **LIFO (Last-In, First-Out)**: The newest items are sold first, often lowering tax in inflationary times. 3. **Weighted Average Cost**: This method averages the cost of all items in inventory. Choosing the right method affects profit margins, tax liability, and financial health, as it impacts the balance sheet and income statement. Each method suits different business strategies and market conditions.