Question

State two methods of stock valuation used in cost accounting.

Hint:

FIFO = oldest stock issued first, LIFO = newest stock issued first.

Answer 1

Stock valuation means determining the value of materials or goods in hand at the end of an accounting period.
In cost accounting, two widely used methods are:
1. FIFO (First In First Out): The oldest items are issued first and closing stock is valued at the latest purchase price.
2. LIFO (Last In First Out): The latest items purchased are issued first and closing stock is valued at the earliest purchase price.
Other methods include Weighted Average Price Method and Standard Cost Method.
Choosing the right method affects cost of goods sold and inventory valuation, which impacts profit calculation.