Inventory costing methods

In business, the inventory may be defined as the goods held for sale in the ordinary course of business or the goods that are used to manufacture goods ,,,,,

Under periodic inventory system inventory account is not updated for each purchase and each sale. All purchases are debited to purchases account. At the ,,,,,

Perpetual inventory system provides a running balance of cost of goods available for sale and cost of goods sold. Under this system, no purchases account ,,,,,

Specific identification method can be applied in situations where different purchases can be physically separated. Under this method, each item sold and ,,,,,

Under average costing method,the average cost of all similar items in the inventory is computed and used to assign cost to each unit sold. Like FIFO and ,,,,,

The first-in, first-out (FIFO) method is a widely used inventory valuation method that assumes that the goods are sold (by merchandising companies) or ,,,,,

Under first-in, first-out (FIFO) method, the costs are chronologically charged to cost of goods sold (COGS) i.e., the first costs incurred are first costs ,,,,,

In contrast to first-in, first-out (FIFO) method, the last-in, first-out (LIFO) method of inventory valuation assumes that the last costs incurred to purchase ,,,,,

Under last-in, first-out (LIFO) method, the costs are charged against revenues in reverse chronological order i.e., the last costs incurred are first costs ,,,,,

The LIFO periodic system and the LIFO perpetual system may generate different cost of goods sold (or materials issued) and the cost of ending inventory ,,,,,

LIFO liquidation occurs when a company, using LIFO inventory valuation method, sells (or issues) the old stock of merchandise (or raw materials) inventory. ,,,,,

Most of the companies use first-in, first-out (FIFO), average, or standard cost method for internal uses and last-in, first-out (LIFO) method for external ,,,,,

Like specific goods pooled LIFO approach, Dollar-value LIFO method is also used to alleviate the problems of LIFO liquidation. Under this method, goods ,,,,,

Advantages of last-in first-out (LIFO) method: The employment of LIFO is very common among companies worldwide because of the following benefits: (1). ,,,,,