Question

Respond to the following in a minimum of 125 words:

In what financial documents does an inventory valuation appear? How does the valuation method an organization chooses affect the final valuation figure. In what ways is that figure important to an organization?

Answer 1

Inventory valuation is the cost associated with an entity's inventory at the end of a reporting period. This valuation appears as a current asset on the entity's balance sheet.

The valuation method for your business depends on a number of factors, like where your business is based, whether your costs are going up or down, and how much your inventory varies. When it comes to inventory accounting methods, most businesses use the FIFO method because it usually gives the most accurate picture of costs and profitability.

Having an accurate valuation of inventory is important because the reported amount of inventory will affect the following

1) the cost of goods sold, gross profit, and net income on the income statement

2) the amount of current assets, working capital, total assets, and stockholders' or owner's equity reported on the balance.