The process of accurate valuation of inventory is vital to an organization because the reported value of a firms inventory will affect the cost of goods sold, gross profit, and net income on the income statement. In addition, the value of current assets, working capital, total assets, and stockholders' or owner's equity reported on the balance sheet will be impacted. Furthermore, an incorrect inventory valuation will cause two income statements to be recorded incorrectly, because the ending inventory of one accounting period becomes the beginning inventory in the ensuing accounting period.

Respond to the following in a minimum of 175 words:

List and discuss four factors that must be considered for accurate inventory valuation.

Which of the four factors do you believe is most important and why?