Inventory valuation is the accounting process of assigning value to a company’s (or investor’s) inventory, by determining the Cost of Goods(Items) Sold (“CGS”) according to several accepted industry standards.
This Excel tool provides the calculation of “CGS” (as well as realized profit or loss), based on the following most widely used valuation methods:
– First-In, First-Out (FIFO): values inventory assuming the first inventory items purchased are the first ones to be sold.
– Last-In, First-Out (LIFO): values inventory assuming the last inventory items purchased are the first ones to be sold.
– Weighted Average Cost (WAC): values inventory based on the weighted average cost of items purchased to build the inventory.
Each method can be applied either on a periodic or perpetual basis, the former assuming cost of goods sold is calculated at the end of the inventory period, the latter on a continuous basis, at the time of each sale.
Currently the tool supports periodic valuation for LIFO and FIFO, and both perpetual and periodic valuation for Weighted Average Cost (WAC).
Interestingly, the same methods can be applied by investors for the valuation of their trading portfolios (financial instruments available for sale), including stocks, bonds, foreign currencies, derivatives, commodities etc.
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