Our Inventory Valuation Policy is designed to help organizations strengthen their inventory management and financial reporting processes. By offering clear, practical guidelines, this resource enables businesses to achieve greater accuracy and consistency in valuing their inventory, supporting compliance with accounting standards and minimizing risks related to misstatements or losses. Ideal for companies seeking to enhance their internal controls, this tool provides a structured set of procedures that can streamline operations and improve transparency, making it an essential asset for any organization interested in optimizing inventory practices.

Within this tool, you will find two samples, each illustrating distinct approaches to inventory valuation. Sample 1 emphasizes the importance of controlling and costing inventory accurately, detailing the use of specific valuation methods, consistency requirements, and the treatment of reserves and capitalized costs. Sample 2 focuses on updating inventory values to reflect current cost levels, explaining the procedures for annual cost adjustments, documentation and direct costing practices.

Sample procedures include:

• When determining the value of each inventory item, the lower cost or market valuation method should be applied to actual inventory quantities, with cost being determined on a first-in-first-out (FIFO) basis.
• Company policy is to make all inventory account adjustments to the appropriate inventory reserve account.
• Inventory costs should be updated to reflect approximate current cost levels at least annually in the fourth quarter.
• Direct costing must be used for inventory valuation and reporting income statement and balance sheet data.