What is the inventory rating?

Inventory valuation is a statement that provides information on the value of goods held in the inventory. Goods in the inventory can form a substantial part of the company's own capital and therefore there is a great interest in the total value of the company's inventory. This information is given in the financial statements that can be used internally and externally for various accounting tasks, the company's appreciation as a whole, and when taking business decisions. One method is to record the sale and movement of inventory if they occur. For example, if the book sells a copy of the dictionary, it would notice the fact that the inventory was a short dictionary and at the same time noticed the amount of sales. This is called a permanent record because inventory numbers are constantly updated. One of the advantages of this system is that it provides real -time that can be checked at any time and uses for everything from inventory valuation to the order of new products that will replace things that sell out.

Another method is periodic. In this case, the sale is recorded at the time they take place, but there is no change in inventory. At the end of the set period, the inventory is manually counted and recorded. For example, in the ice cream store, people do not record every blade because they leave supplies. Instead, they notice how many baths of ice cream have a trade at the end of the day.

In addition to having different ways of monitoring inventory, there are also different methods that can be used for inventory valuation based on how people record the value of items in inventory. One is the first, last method that assumes that when the item is sold, it was the oldest such item in the inventory. For example, if the store receives a shipment on Mondays and Wednesdays and Fridays, it sells four bottles of shampoos, for the purposes of accounting, these units are considered to date from Monday's transport. Last, First Out is another method that can be used for inventory valuation; In the example of shampoo byFour units sold on Friday were recorded as a originated from Wednesday's shipment. Averaging is also possible.

One of the reasons why it is important to know which way of inventory valuation is used is that prices change over time. If you want to borrow an example of shampoo, the store could get Wednesday bottles for a better price from a distributor than Monday. The difference in accounting methods may change the valuation of stocks; If the store has 22 bottles, the inventory valuation will vary depending on which method has been used.