Evaluation of stores
- Inventory assessment is a calculation that helps determine the amount of materials stored in the warehouse and their value. It is an essential part of management and financial accounting, as it helps to determine the total costs of the company and determine the profits and losses related to inventory.Inventory valuation therefore plays a crucial role in achieving business goals. Inventory assessment is carried out by calculating the cost per unit of stored products, by determining the costs related to the purchase and manufacture of products. These costs include the cost of raw materials and materials for production, the cost of labor, equipment and general expenses related to production. In this article, we will talk about the importance of inventory valuation and how it can be used for efficient warehouse management. We will dwell on the main steps and various methods that can be used to evaluate inventory.Why stock valuation is important
Inventory assessment plays a crucial role in efficient warehouse management. If the quantity of materials in the warehouse is inaccurate or there is not enough inventory information, it will be difficult to plan production effectively and meet customers ' need well. In addition, stock assessment helps to determine the required quantities of materials, which can be purchased at better prices, which leads to cost savings.
Inventory assessment steps
1. Identification of materials in the warehouse
The first step in stock assessment is to identify the materials in the warehouse although this step may seem simple, it is necessary for an accurate stock assessment. You should make sure that you have a complete list of all materials stored in the warehouse, and this list should be updated regularly.
2. Calculation of the amount of stored material
After determining which materials are in the warehouse, the quantity of each material should be calculated. This can be done by conducting a periodic inventory count, making sure that the materials in the program match the quantities in the warehouse.
3. Determining the value of stored materials
After calculating the amount of stored material, the value of the stored material must be determined. This can be done by estimating the unit value of each material, and then multiplying it by the quantity that is in the warehouse.
4. Checking the accuracy of the data
After completing the calculation of the amount of material and its value, the accuracy of the data should be checked. It must be ensured that all data are correct and accurate, that they correspond to the reality in the warehouse.
5. Analysis and evaluation
After all the data has been collected, it can be used to conduct analysis and evaluation. This data can be used to determine which materials are most in demand, which should be purchased in larger quantities, and to determine which materials are less in demand, the quantities of which can be reduced.
Inventory valuation methods
There are many different methods that can be used to evaluate inventory. We'll take a look at some of these methods:
1.Stock assessment at the cost of production (FIFO)
The FIFO method means that the first purchased materials will be used first. This method is based on the idea that older materials will be less valuable than newer ones. This method is usually used for materials that expire quickly, such as food and medicines .
2. Adjusted production cost (LIFO)
The LIFO method means that the newest materials purchased will be used first. This method is usually used for materials that do not expire quickly, which can be kept in the warehouse for long periods.
3. The method of average cost (Weighted Average )
It means that the average weight of the material is calculated. This average is calculated by dividing the total inventory value by the amount of materials stored.
How can the inventory valuation process be improved
The inventory assessment process can be improved by improving the accuracy of the data, regularly updating the list, using various assessment methods, identifying the most and least demanded materials. Sell older items to be purchased.
Importance and objectives of inventory assessment
Inventory valuation is a calculation process used to determine the financial value of inventory available at any given time. It is vital for business management and trade in general. For example, if you have a store or a manufacturing company, it will be necessary to determine the amount of inventory and the financial value of that inventory. This allows companies to know the value of their inventory and plan for the optimal use of these resources.
The importance of stock assessment includes:
Determining the cost of sale: inventory valuation helps determine the cost of materials sold. It determines the cost per unit of inventory sold, thereby enabling the company to accurately calculate profits and losses.
Improve inventory management: the inventory assessment process helps to understand which goods need to be refilled and improve productivity in the company. It helps to improve the demand model and supply and demand management.
Making purchasing and production decisions: the inventory assessment process can help companies make purchasing and production decisions. When evaluating inventory, a company can determine which items it needs to purchase mainly and which items need to be produced in-house.
Meeting customer needs: the inventory assessment process helps to meet customer needs effectively. Where companies can find out the available quantities of products and materials that are nearing completion, the most in demand and the least in demand .
Inventory valuation: how to calculate the value of inventory in a business
Inventory valuation is vital in business, it helps to determine the value of available inventory and thus control spending and profits. It is important to know how to evaluate the inventory and the necessary steps for this.
The first step in stock valuation is to determine the expected value of the available inventory. This can be done using one of two methods: evaluating inventory at cost or evaluating inventory at fair value.
Inventory valuation at cost refers to the calculation of the cost of materials, labor, equipment and other costs necessary for the production of inventory. Thus, the cost per unit of the product in stock is calculated by adding up all these costs and then dividing by the number of units produced. This type of inventory valuation is based on the assumption that the cost of production is the primary criterion for determining the value of inventory.
Valuation of inventory at fair value, in turn, refers to determining the value at which products in stock can be sold on the current market. This type of inventory valuation is based on the assumption that the current value of products is the main criterion for determining the value of inventory.
Revaluation of inventory
Inventory revaluation is the process of recalculating the cost of inventory at New prices, whether due to a change in inventory value, due to a change in supplier prices, or due to market fluctuations. This is done by revaluing the items in the inventory and adjusting their value based on changes in the market . Revaluation of inventory is a very important process because it helps to determine the real value of inventory and reflects the current economic state of the company. When the stock is properly revalued, the company can make the right decisions about reducing or increasing the quantities stored and work to reduce inventory costs. It is important that the inventory is regularly revalued, so that the accuracy of the declared value of the inventory is maintained and updated regularly. The methods of revaluation of inventory vary according to the accounting system used in the company, and these methods must comply with the approved accounting standards to ensure accuracy and transparency in the valuation process.Steps for revaluation of inventory
Inventory revaluation is an important process to ensure that the inventory value recorded in the accounts is correct and updated appropriately. This process involves several steps, the most important of which are:
- Determining the new cost: the new cost of the stored products is determined by determining the new purchase price per unit, or the total cost of production in the case of internal production.
- Determining the value of the current inventory: the current inventory value is calculated based on the actual number of products in stock, and multiply this number by the new cost per unit to obtain the new inventory value.
- Determination of losses and profits: the losses and profits achieved are calculated based on the difference between the previous cost and the new cost. If the new cost is higher than the previous one, then profits are determined, and if it is lower, losses are determined.
- Updating accounting records: accounting records are updated based on the results obtained in the revaluation of inventory, in order to update the inventory value in the accounts.
- Checking the differences: any differences that appear between the actual quantities of products in stock and the quantities recorded in the accounts should be checked, and corrected if necessary.
Stock revaluation is a vital process for managing inventory and maintaining inventory balance in an enterprise. Revaluation should be carried out periodically to ensure the accuracy of the inventory assessment and compliance with accounting standards. The revaluation steps include checking the stored quantities, setting prices and making a return
The difference between stock valuation and stock pricing
The difference between stock valuation and stock pricing can be confusing for some people, as two words that are close in meaning but are not the same are used. Stock valuation refers to estimating the actual stock value somewhere at a certain point in time, while stock pricing refers to putting a price on that stock which is something that can vary from person to person.
When an inventory valuation is carried out, the actual inventory value is determined using various methods, such as the cost method or the alternative price method. In both cases, the actual inventory value is calculated using the available data and supporting documents.
On the other hand, inventory pricing is done when a certain value of the inventory is determined using different prices and different estimated metrics. This type of valuation is used in various situations, such as stock valuation or valuation of fixed assets.
In general, it can be said that inventory valuation refers to determining the actual inventory value using available data and supporting documents, while inventory pricing refers to placing a price on inventory using various metrics according to various circumstances and needs.
Inventory valuation criteria
There are several criteria that are used in the inventory assessment, among them are:
- Cost of acquisition (FIFO): this method is based on the assumption that the products sold or used in production were purchased with the priority of purchase, that is, the products purchased first will be sold first. Inventory valuation is carried out based on the cost of acquisition for these products.
- Last of the income (LIFO): this method differs from the previous one, as it depends on the fact that the products sold or used in production were purchased with the last purchase, that is, the products that were purchased last will be sold first.
- Inventory valuation is carried out based on the cost of acquisition for these products.
- Weighted average: this method is used to determine the average cost per unit of stored products, and this average is used in stock valuation.
- Standard cost: this method is used to evaluate inventory using a pre-estimated production cost per unit of product.
These methods differ in relation to the cost that is used in the inventory valuation, and the results obtained using each method are different. So, companies have to choose the method that suits their business and the quality of the products stored.
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