This chapter covers inventories and the different valuation methods used to calculate the values of both cost of goods sold and ending inventory for a firm. Different cost flow assumptions, including first-in, first-out (FIFO), last-in, last-out (LIFO), average cost, and specific identification, are introduced. Finally, advanced inventory concepts such as LIFO reserves, LIFO liquidations, and inventory write-downs are covered. Throughout, the chapter emphasizes the importance of analysts understanding how these concepts can impact financial statement analysis.