The valuation of inventory is not a minor issue, because the accounting method used to create a valuation has a direct bearing on the amount of expense charged to the cost of goods sold in an accounting period, and therefore on the amount of income earned.
Cost. Includes the purchase cost and any other costs necessary in bring the inventories to their present location and condition. These may include costs incurred directly in the production of inventory such as direct labor and production overheads (i.e. conversion costs) and other expenses such as transportation and handling charges, taxes and duties that may not be recoverable from tax authorities.
Managing inventory is an important task in many businesses. Inventory comprises the total amount of finished goods and materials on hand and the process of counting them. Many companies do periodic inventory checks to ensure that they will not run out of popular items, while others match the total amount of goods ordered with the physical count. If this process results in an overage or shortage, it will alert you to a problem, such as incorrect inventory tracking or possible theft.