Glossary · Inventory and costing
Inventory valuation
Inventory valuation is the method and result of putting a dollar value on the stock a business holds at a point in time. The value appears as an asset on the balance sheet and decides cost of goods sold. Common methods are FIFO, average cost and, in the US only, LIFO.
Glossary / Inventory valuation · Also called Stock valuation, Inventory value
How it works
When you buy the same item at different prices, you need a rule for which cost goes with each sale and which stays in stock. That rule is the costing method. It changes both the inventory figure and the profit for the period, even though the physical stock is the same.
Inventory is generally carried at cost, but if its value falls below cost because it is damaged, out of date or no longer sells, it should be written down. A physical count at year-end checks that the quantities in the books match what is on the shelves.
Worked example: Valuing 30 units bought at two prices
A shop buys 20 units at $10 and then 20 units at $13. It sells 10, leaving 30 on the shelf.
Under average cost, every unit costs $11.50 (that is $460 ÷ 40), so the 30 left are worth $345. Under FIFO, the 10 sold were the oldest $10 units, so the 30 left are 10 at $10 and 20 at $13, worth $360. Same shelf, a $15 difference in value and in profit.
In the US and in Canada
In the United States
US businesses may use FIFO, average cost or LIFO for tax, with rules on changing methods. LIFO is not allowed under IFRS.
In Canada
In Canada, LIFO is not permitted for tax or under Canadian accounting standards. Inventory is valued at cost or at the lower of cost and fair market value.
In AcboBooks
AcboBooks values inventory at average cost only, recalculated as stock is received. The Inventory Valuation report shows quantity, average cost and value per item. Adjust Inventory records a counted difference in quantity or value, and the Physical Inventory Worksheet gives book quantities with a column to count into.
Related terms
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Sources
Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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