What is inventory valuation?
Inventory valuation assigns a cost to goods still on hand and to goods already sold. That split drives your ending inventory (balance sheet asset) and your cost of goods sold (income statement expense). Getting it right keeps profits, taxes, and stock reports trustworthy.
FIFO, LIFO, and weighted average explained
FIFO (First-In, First-Out) assumes the oldest units are sold first. Ending inventory is valued at newer costs. During rising prices, FIFO usually means lower COGS and higher profit.
LIFO (Last-In, First-Out) assumes the newest units are sold first. Ending inventory keeps older costs. During inflation, LIFO often means higher COGS and lower taxable income. Note: LIFO is allowed under US GAAP but not under IFRS.
Weighted average cost blends all unit costs into one average applied to both COGS and ending inventory. It smooths price swings and is simple for interchangeable goods.
How this calculator works
Add each purchase as a layer (date, quantity, unit cost). Enter how many units you sold. The calculator values remaining units under your chosen method and derives COGS as total purchase cost minus ending inventory.
Tip: enter purchases in chronological order for clearer FIFO/LIFO results. If quantity sold exceeds purchases, remaining inventory is treated as zero.
Choosing a method for your business
Use FIFO when you want inventory on the balance sheet closer to current replacement cost, or when you report under IFRS. Use weighted average for high-volume identical items. Use LIFO only if your jurisdiction and accounting framework allow it and your tax advisor agrees.
Always value inventory at the lower of cost or net realizable value when preparing financial statements — this tool focuses on cost-flow methods.
Keep inventory books without the spreadsheet grind
This free calculator is ideal for quick what-if analysis. For ongoing inventory, purchases, and COGS tied to live books, try Adam by Tyms.