Chapter 9
Inventory
(stock) valuation
Inventory (stock) valuation
A good estimate of closing stock is provided by
three methods of stock valuation:
 First-In-First-Out (FIFO) Method
 Last-In-First-Out (LIFO) Method
 Average Cost (AVCO) Method
First-In-First-Out (FIFO) Method
In this method we assume that the first set
of inventory received is the first to leave the
warehouse. The resulting ending inventory
will be valued at current prices.
First-In-First-Out
(FIFO) Method
Stock valuation schedule (FIFO)
January 1, 2006 - June 30, 2006
Last-In-First-Out
(LIFO) Method
In this method we assume that the last set
of inventory received is the first to leave the
warehouse. The resulting ending inventory
will be valued at older prices.
Last-In-First-Out (LIFO) Method
Stock valuation schedule (LIFO)
January 1, 2006 - June 30, 2006
Average Cost (AVCO) Method
In this method, each time goods are
purchased we calculate a new average cost
of inventory. The average cost is calculated
using the equation
Average cost of inventory=
Total value of goods on hand ÷
Quantity of goods on hand
The resulting ending inventory will be valued
at the last calculated average.
Average cost (AVCO) Method
Stock valuation schedule (AVCO)
January 1, 2006 - June 30, 2006
2006
Receipts
Issues
Average
Jan
200@10
0
$10.00
200@10=2000
Feb
300@14
0
$12.40
500x12.40=6200
Apr
0
$12.40
250@12.40=3100
June
450@15
$14.07
700@14.07=9850
250@12.40
0
Balance