Inventory valuation
accounting methods used in determining the value of inventory
An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements. If inventory is not properly measured, expenses and revenues cannot be properly matched and a company could make poor business decisions.
An inventory and valuation of assets may also be used for other purposes. For example, in the attachment of a debtor's property or in compulsory transfer. An inventory and valuation of assets is an official court document that lists all assets included in the deceased's estate and their fair market value as of the date of death. Inheritance may be effected under a will or in accordance with intestacy law if the deceased left no will.
Inventory accounting system
The two most widely used inventory accounting systems are the periodic and the perpetual.
Perpetual: The perpetual inventory system requires accounting records to show the amount of inventory on hand at all times. It maintains a separate account in the subsidiary ledger for each good in stock, and the account is updated each time a quantity is added or taken out.
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