Inventory valuation is a fundamental accounting process used to assess the monetary value of inventory that a company holds at the end of a financial period. This valuation affects the cost of goods sold (COGS) and ultimately impacts the company's profitability and tax liability. Several methods exist for inventory valuation, including the First In, First Out (FIFO) method, Last In, First Out (LIFO) method, and the Weighted Average Cost method, each with its benefits and scenarios of application. For instance, under FIFO, older inventory costs are accounted for first, which might be more realistic in an inflating market. In contrast, LIFO assumes that the latest inventory costs are used first for accounting. Accurate inventory valuation ensures compliance with accounting standards such as IFRS or GAAP and provides a clear financial picture to management and stakeholders. For example, a retail company evaluating its year-end inventory would calculate the total cost of goods on its shelves using a selected inventory valuation method. Overall, correct inventory valuation supports better decision-making regarding pricing, stock management, and financial reporting.