Stock Valuation Methods

Determining which method is used to assign inventory costs to the Cost of Goods Sold (COGS) account in the income statement is a major management decision. Inventory items that are in a company's possession and available for sale throughout a period must acquire a period end status of either Sold or On hand. If the items have been sold, you must reflect the costs assigned to those goods on the period's income statement. If the items remain unsold, you must be able to determine which portion of the cost of goods available for sale is to be assigned to the income statement, and which portion is to be assigned to the balance sheet.

Inventory items physically move out of the business when they are sold. Similarly, the costs assigned to those items must move from the balance sheet to the income statement, where they are no longer reflected as an available resource but as an operating expense for that period.

The JD Edwards EnterpriseOne Advanced Stock Valuation system provides these valuation methods for all items in the inventory:

• First In, First Out (FIFO).

• Last In, First Out (LIFO).

• Weighted Average Cost.

• Replacement/Current Cost.

In this documentation, we refer to these methods as stock valuation methods to differentiate between the cost of an item and its current value. Cost refers to the cost of an item so that you can determine its selling value. Valuation determines the value of any item that is currently in the inventory for reporting and financial purposes.