Chapter 9 Inventory (stock) valuation

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Chapter 9Inventory (stock) valuation
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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

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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.

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First-In-First-Out (FIFO) Method

• Stock valuation schedule (FIFO)
• January 1, 2006 - June 30, 2006

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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.

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Last-In-First-Out (LIFO) Method

• Stock valuation schedule (LIFO)
• January 1, 2006 - June 30, 2006

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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.

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Average cost (AVCO) Method

• Stock valuation schedule (AVCO)
• January 1, 2006 - June 30, 2006

2006 Receipts Issues Average Balance
Jan 200_at_10 0 10.00 200_at_102000
Feb 300_at_14 0 12.40 500x12.406200
Apr 0 250_at_12.40 12.40 250_at_12.403100
June 450_at_15 0 14.07 700_at_14.079850