Inventory Valuation
Inventory valuation is the dollar value of your unsold stock, carried as an asset on the balance sheet at cost, not at what you'll sell it for. The valuation method you choose, FIFO or weighted average cost for most sellers, determines how costs flow into COGS as units sell. Get the valuation wrong and both your profit and your taxes are wrong, in whichever direction the error runs.
Valuation errors are silent because inventory sits in places you don't see: FBA warehouses, a 3PL, a container on the water. A seller who thinks they hold $220,000 of stock but actually holds $180,000, after shrinkage, unrecorded disposals and lost units, is overstating assets by $40,000 and overstating profit by the same amount, since missing inventory eventually has to flow through COGS. That surprise tends to surface at the worst moments: a lender's field exam or a buyer's diligence.
The discipline is periodic reconciliation of book inventory to physical and platform counts, valued at true landed cost. For multi-location operations we tie FBA, 3PL and warehouse counts monthly. It's part of monthly bookkeeping, and for larger operations running NetSuite, the valuation lives directly in the ERP.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
Monthly Ecommerce Bookkeeping→