inventory valuation definition

The dollar amount associated with the goods in a company's inventory. Initially the cost per unit is the cost to get the inventory items in place and ready for use. However, under certain circumstances the cost may have to be reduced to a lower amount.

Since inventory items are constantly being purchased and sold and since the cost of the items purchased often changes, a company must select a cost flow assumption.

The inventory valuation is critical because it also affects the cost of goods sold amount that is matched with sales on the income statement.

Learn more about Inventory and Cost of Goods Sold.