Question 1

Which method of inventory valuation is the best for your business?

Accepted Answer

There’s no one correct answer here. Inventory valuation methods are important because they are generally accepted accounting principles that help with pricing decisions, tax strategies, and other factors. What works best for your business depends on your business model, product shelf life, and financial goals. You may use one strategy to reduce tax liability and another if you'd rather focus on attracting investors.

Question 2

Is inventory valued at cost or selling price?

Accepted Answer

Businesses must value inventory at cost. Its price continually changes as it is sold and restocked, so using the cost flow assumption that it will use most often.

Question 3

What percentage of inventory should be sold?

Accepted Answer

This depends largely on the sector you're in. Most are safe to maintain a level between 10% and 20% of sales. Larger inventories generally mean greater volatility. Real estate developers are a great example, because they can see their inventory fluctuate by up to 40% of sales at any given point.

Ben Clarke

More From Ben Clarke

5 Best Inventory Valuation Methods For A Profitable Business

Join 30K+ entrepreneurs already learning ecommerce.

Ecommerce CEO

Guides & Resources

Best Ecommerce Tools

Reviews