KB254: Retail Method of Inventory Valuation

Retail companies have used the retail method of inventory accounting for many years. According to the Committee on Ways and Means, the retail inventory method has been the best accounting method for retail stores since 1941. Written by Professor N.P. McNair of the Harvard Graduate School of Business, The Retail Method of Inventory was the first major book detailing the pros of using this method. The retail inventory method is compliant with generally accepted accounting principles (GAAP) and approximates a “lower of cost or market” inventory valuation.

Accepted by the American Institute of CPAs under GAAP, the retail inventory method is one of only two methods accepted for tax reporting purposes. Direct Cost Method is the other accepted method. The retail method is the most widely used method by retail companies to calculate inventory values.

This aim of this article is to explain this method and provide examples in VisualRATEX. If you want to share this information, attached is a printer-friendly PDF version of the article.