What is Inventory? Inventory valuation method

Inventory (Inventories)

Define

Inventory in english is Inventories. Inventory are assets held for sale in the normal period of production or business or in the process of production or business in progress or raw materials, materials, tools, instruments for use in the production process, business or provide services.

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Classify

Inventory includes:

– Goods purchased for sale: goods in stock, goods purchased on the way, goods sent for sale, goods sent for processing

– Finished goods in stock and finished products sent for sale

– Unfinished products: Unfinished products and finished products that have not gone through the procedures for warehousing of finished products

– Raw materials, materials, tools, tools in stock, sent for processing and purchased on the way

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- Unfinished service costs.

In fact, based on the role, the enterprise's inventory can be divided into three main categories: raw materials, semi-finished products and finished products.

Inventory valuation method

Method of calculating by target price

The nominal price method is applicable to businesses with few identifiable and stable product categories or items.

The weighted average method

According to the weighted average method, the value of each type of inventory is calculated according to the average value of each similar inventory at the beginning of the period and the value of each type of inventory purchased or produced during the period.

The average value can be calculated over time or every time a shipment is imported, depending on the situation of the business.

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First-in, first-out method

The first-in, first-out method assumes that inventories purchased first or produced first are sold out first, and that the remaining inventory at the end of the period is inventory purchased or produced near the end of the period. period.

According to this method, the value of inventories is calculated according to the price of the goods in stock at the beginning of the period or near the beginning of the period, the value of the inventory is calculated according to the price of the goods in stock at the end of the period or near the end of the period. inventory at the end of the period.

Last in, first out method

The last-in, first-out method is based on the assumption that inventories purchased later or produced later are sold out first, and that the inventory remaining at the end of the period is inventory purchased or produced earlier.

According to this method, the value of goods sold is calculated according to the price of the last or last imported goods, the value of inventory is calculated according to the price of goods imported at the beginning of the period or near the beginning of the period in stock.

(References: Textbook of Corporate Finance, Financial Publishing House; Accounting Standard 02)

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