When dealing with stock open balances, it’s essential to choose the right accounting method to ensure accurate financial reporting. Let’s explore the options:

Inventory Valuation Methods:

FIFO (First-In, First-Out): This method assumes that the first items purchased are the first ones sold. It aligns with the natural flow of inventory and is commonly used. FIFO tends to result in a more accurate representation of costs when prices are rising.
AVCO (Average Cost): AVCO calculates the average cost of all units in stock. It smooths out fluctuations in prices and provides a reasonable estimate of inventory value.
LIFO (Last-In, First-Out): LIFO assumes that the most recently acquired items are the first ones sold. It’s less common and may not reflect the actual flow of goods but can be useful for tax purposes.

Balance Sheet Impact:

Inventories: The value of unsold stock appears on the balance sheet as a current asset. It includes raw materials, finished products, and work in progress.
Stock Received (Interim): This account is used for stock adjustments and reflects discrepancies between physical quantities and recorded quantities. However, it’s not typically part of the balance sheet.

Choosing the Right Method:
FIFO and AVCO are generally preferred for accurate financial reporting. They align with the flow of goods and provide a better representation of costs.
LIFO is less common due to its potential mismatch with actual inventory flow.
Consider your business needs, industry practices, and regulatory requirements when selecting an inventory valuation method.