ABSTRACT
Companies keep records showing the invoice price of each item purchased, so they may simply use the unit costs on the most recent invoice to value stock. But what if the closing stock level exceeds the quantity of items purchased on the most recent invoice? Or what if the price of an item fluctuates sharply? To deal with these issues a company must establish a policy for valuing stock, which will affect both the balance sheet stock figure and the reported profit or loss.
