Inventory valuation - Introduction
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Inventory valuation is important for financial reporting and understanding profitability. It provides the basis for assets and cost of goods sold reported on the balance sheet and income statement. Regulations like GAAP and IFRS provide rules for valuing inventory, such as including fully absorbed costs under GAAP and treating overhead as a period cost under IFRS. The flow of inventory is also outlined from receipt to sale for both merchandising and manufacturing businesses.
![Why is Inventory Valuation Important? ,[object Object],Balance Sheet Inventory is listed in the Current Assets section of the Balance Sheet. Cost of Sales The inventory value is the basis for the Cost of Sales on the Income Statement. Current Assets Raw Materials 1,000,000.00 Work in Process 500,000.00 Finished Goods 300,000.00 Gross Inventory 1,800,000.00 ,[object Object],-150,000.00 Net Inventory 1,650,000.000 Income Statement Sales 1,000,000.00 Cost of Sales -450,000.00 Gross Income 550,000.00](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)