Inventory Accounting

See How Inventory Affects Your Books

Inventory isn't just physical stock. It's also one of the largest assets on a balance sheet. This section covers how inventory gets valued — including FIFO, LIFO, and weighted average cost. It also covers how shrinkage and dead stock affect your numbers.

Each guide walks through the accounting concepts with worked examples. You'll see just how the same inventory can be valued differently, based on the method used.

Why the Valuation Method You Choose Matters

Inventory accounting can feel tricky at first. Terms like FIFO and LIFO get thrown around a lot. But the core idea is simple: your inventory needs a dollar value. There's more than one way to calculate it.

The method you choose affects more than paperwork. It changes your profit, your tax bill, and the value of your assets on the balance sheet. Two businesses with the exact same stock can report very different numbers. That's because they use other valuation methods. This section breaks each method down in plain terms, with worked examples using real numbers. You'll see exactly how FIFO, LIFO, and weighted average cost treat the same purchase in different ways.

You'll also find guides on the hidden side of inventory accounting. That includes shrinkage, dead stock, and the steady cost of simply holding inventory. These topics often get less focus. But they still affect your bottom line every month.

Over time, knowing these ideas helps you spot problems earlier. A rising shrinkage rate or a sudden jump in dead stock is often a signal. It's worth looking into before the problem grows larger.