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The Bookkeeping Advisory Team

Inventory Valuation

Tracking your inventory level is an important component of managing your E-Commerce business. But before we can track our inventory, we have to first value them. These are the 3 ways to value your inventory:


1. FIFO – First-In-First-Out assumes that goods that are purchased first (first-in) are sold out first (first-out). Hence, to determine income, the earlier costs of goods are matched with sales revenue, and the later costs are used for balance sheet valuation. FIFO method is best for products with limited shelf life like food.


2. LIFO – Last-In-First-Out assumes that goods that are recently purchased (last-in) are sold out first (first-out). The current revenues of companies adopting LIFO are matched with recent costs. LIFO is more suitable for non-perishable products.


3. Weighted Average Cost Method is determined by dividing the total cost of goods by the total number of goods purchased or produced over a specific period of time. This method is particularly useful when inventory items are so intertwined that it becomes challenging to assign a specific cost to an individual unit.



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