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"FIFO" stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first (but this does not necessarily mean that the exact oldest physical object has been tracked and sold). In other words, the cost associated with the inventory that was purchased first is the cost expensed first.
Specific identification is a method of finding out ending inventory cost.. It requires a detailed physical count so that the company knows exactly how many of each good bought on specific dates comprise the year-end inventory.
Average cost. The average cost method relies on average unit cost to calculate cost of units sold and ending inventory. Several variations on the calculation may be used, including weighted average and moving average. First-In First-Out (FIFO) assumes that the items purchased or produced first are sold first.
Moving-average (unit) cost is a method of calculating ending inventory cost. Assume that both beginning inventory and beginning inventory cost are known. From them the cost per unit of beginning inventory can be calculated. During the year, multiple purchases are made.
Ending inventory is the amount of inventory a company has in stock at the end of its fiscal year. It is closely related with ending inventory cost, which is the amount of money spent to get these goods in stock. It should be calculated at the lower of cost or market.
Two very popular methods are 1)- retail inventory method, and 2)- gross profit (or gross margin) method. The retail inventory method uses a cost to retail price ratio. The physical inventory is valued at retail, and it is multiplied by the cost ratio (or percentage) to determine the estimated cost of the ending inventory.
Inventory may also cause significant tax expenses, depending on particular countries' laws regarding depreciation of inventory, as in Thor Power Tool Company v. Commissioner. Inventory appears as a current asset on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations ...
Purchases, cost of goods sold, and inventory on hand cannot be tracked until the end of the accounting time period when a physical inventory is performed and ending inventory is compared against the sum of beginning inventory and purchases. Cost of ending inventory can be calculated by using the LIFO or FIFO inventory accounting methods, or ...