Frequently Asked Question
Inventory Valuation FAQS
If a business has any inventory levels, without knowing how to value the inventory items, the calculation of utmost financial statements is nearly impossible. Because the financial statements are a main means to attract investors, pay taxes and regulate the company's future, it is tremendously significant that a business value inventory properly.
2. How to Adjust Inventory Value in Accounting?
By year end, business proprietors frequently adjust the value of inventory recorded on the accounting books to a more accurate value of the inventory at that point in time. Uselessness, damage and declines in the market for certain products can all donate to a devaluation of inventory. Usually Accepted Accounting Principles (GAAP) requires obscurantism in regards to overstatement of assets, so adjustments to the general ledger balance for inventory must be made prior to tax filing.
3. Exactly how to Calculate Inventory Turnover?
Calculate the cost of goods sold. One way to do this is to count the number of products sold and multiply the total by the cost to produce each one. Another way is to take the total dollar value of inventory to start with, add the cost of production resources and supplies purchased in that period, and subtract the dollar value of the remaining inventory at the end of the period.
Calculate the average dollar value of inventory on hand at the time inventory turnover is being assessed.