inventory valuation business definition

The cost assigned to inventory for the purpose of establishing its current value. Inventory valuation is determined according to the basis by which a firm assumes inventory units are sold. If the first units acquired are assumed to be the first units sold (first-in, first-out), costs of the last units purchased are used for valuing inventory remaining in stock. Conversely, if the last units acquired are assumed to be the first units sold (last-in, first-out), the costs of the first units purchased are used for valuing the inventory remaining in stock.