fbpixel
101 Concepts for the Level I Exam

Concept 51: Inventory Valuation Methods


The four inventory valuation methods are:

FIFO

  • The cost of the first item purchased is assumed to be the cost of the first item sold.
  • Ending inventory is based on the cost of the most recent purchases.

LIFO

  • The cost of the last item purchased is assumed to be the cost of the first item sold.
  • Ending inventory is based on the cost of the earliest purchases.

Weighted average cost

  • Each item in the inventory is valued using an average cost of all items in the inventory.
  • COGS and inventory values are between their FIFO and LIFO values.

Specific identification

  • Each unit sold is matched with the unit’s actual cost.
  • This method is usually used for items that are unique in nature, for example – jewelry.

All four methods are permitted under U.S. GAAP. However, IFRS does not permit LIFO method.