Choosing an Inventory Accounting Method - Explained
How to Choose an Accounting Method?
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Table of ContentsHow Do I Choose an Inventory Accounting Method?
How Do I Choose an Inventory Accounting Method?
There are 4 primary Inventory accounting methods:
- Specific Identification
- Last-in, First-out (LIFO)
- First-in, First-out (FIFO)
Each of these methods provides any number of specific benefits. We explore each below.
What are the benefits of each Inventory Accounting Method
Specific Identification - Gives specificity and the most accurate method of reporting.
FIFO - The ending inventory after a sale generally gets closer to the present-day cost of inventory. The older (generally cheaper inventory) is being removed from the inventory. (Of course, this may not be true in the event of extreme price swings.)
LIFO - The current expenses to COGS is closest to the replacement cost, as the the most recently purchased items of inventory are being sold first.
Weighted Average - This method is the most consistent and the least erratic in causing variations in the expenses and replacement costs.
- Do It Right the First Time (DRIFT) Definition
- What is Merchandise Inventory (Retail Inventory Method)? – Financial Accounting
What are Inventory Costs (Carrying Costs)? – Financial Accounting
- Specific Identification Method of Accounting for Inventory – Financial Accounting
- First-in, First-Out Method (FIFO) – Financial Accounting
- Last-In, First-Out Method (LIFO) – Financial Accounting
- Weighted-Average Method of Accounting for Inventory – Financial Accounting
- Financial Statement Effects (Inflationary vs Deflationary Periods) – Financial Accounting
- Intermittent Purchase and Sell
- Choosing an Accounting Method – Financial Accounting
- Effect of Each Accounting Method on Taxes – Financial Accounting
- Lower of Cost or Market Method of Accounting for Inventory – Financial Accounting