Inventory generally refers to stock or stock in trade. In a trading concern, it refers to goods meant for resale or unsold goods. In a manufacturing concern, it includes items such as raw materials, semi-finished goods, and finished goods.
The method of inventory valuation is very important because it determines the amount of firm’s investment in inventory and it influences the firm’s reported income.
In Financial accounting, the inventory is traditionally valued at lower of the cost or market value. On the other hand, in Cost accounting it is valued at cost of production.
Hence, the valuation of socks in two sets of books will be different and there will be difference in profits shown by financial and cost accounting records. This difference will be reconciled through a Reconciliation Statement.
It is a topic which is there in CAFC, CSFC, BCOM, BMS syllabus. To know more about Valuation Of Inventory, How To Calculate The Cost Of Goods Sold? LIFO vs FIFO Method click on the links below where Prof. CA Sapan Parikh has exlained the topic in a easy way.