FIFO vs. LIFO
What are the different methods of inventory valuation?
Inventory valuation is a very important component to company financial statements. For one, capital intensive companies tend to have higher levels of inventory due to their overall business operations. Manufacturing company's, for instance may have large inventory holdings as goods are classified into "finished goods inventory," or "partial inventory." Retail companies also tend to have large amounts of inventory to cater to their respective customer demographics and markets. As such, differing valuation methods are needed in order to effectively ascertain inventory levels. Inventories, in regards to financial statement reporting, are usually the largest current asset of a business. Therefore, proper measurement is needed to insure an accurate account of value. For example, in the occurrence that inventory is not properly accounted for, revenues and expenses will be misaligned causing misguided decision making (Jonathan, 1995).
To begin, there are two...
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