Accounting › Section I · Inventory › Topic I.1
Inventory valuation methods
When a shop buys identical goods at different prices, someone has to decide which of those costs leave with each sale. The choice of method changes cost of goods sold, gross profit, the inventory on the balance sheet and even the tax bill, without moving a single box.
In this topic
- Same goods, different costs
- Goods available for sale
- What belongs in inventory
- Specific identification and FIFO
- LIFO and weighted average
- Worked example: one sale, four methods
- Why the choice matters
- Lower of cost and net realisable value
- Worked example: a write-down
- Common mistakes to avoid
- Key takeaways
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