What is inventory valuation?

The total is $84.00 + $87.50 + $48.00 = $219.50 at cost. At selling prices the same stock might be worth $300, but that is a hope, not a number to put in the books. Cost is the safe measure, because it is what you paid and cannot be spoiled by a discount.

When a product has been bought at different prices, you must decide which price counts. Common choices are FIFO, which values remaining stock at the latest prices, average cost, and the most recent cost. Each gives a slightly different value and a different profit figure. Choose one, write it down, and keep using it. Mixing methods makes comparisons between months unreliable.

A good valuation depends on good counts. If records say 40 bags and the shelf holds 36, the value is overstated by four bags. A stocktake fixes that, and shrinkage shows how large the gap was.

• Lenders and partners often ask what your stock is worth.
• Insurance claims after a fire or flood need a stock value.
• Profit depends on it, since cost of goods sold is the opening stock plus purchases minus closing stock.

Shopkeepa includes an inventory value report. It relies on the cost you enter for each product, so keep costs up to date. Cashiers cannot see cost or profit, so the figures stay with the owner. The guide on valuation methods compares the options.