Inventory Valuation--the Accountants Achilles Heel.

Abstract Most of the everyday problems which plague practicing accountants in the realm of inventory accounting are somewhat divorced from the theory of inventory valuation and its inevitable relationship to income determination. Any accountant worth his salt has learned long ago to shy away from the word "value." The "value" of something implies its worth, and one doesn't have to be a timid soul to shudder at the insuperable problems which surround an attempt to determine the worth of anything. Value theory tells that such inventories must be worth the present discounted amount of the net receipts which will ultimately flow into the business as a result of their sale. The barrier which stands between value theory and the accounting treatment of inventories is essentially the realization convention. When a sale takes place, or where production under a fixed contract occurs, or where production of goods which sell on an organized market at given prices is completed in all these cases the accountant is willing to grant that the evidence is satisfactory.