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)
• Weighted-Average 

Each of these methods provides any number of specific benefits. We explore each below. 

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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. 

Related Topics

• 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
  
  • Obsolete Inventory Definition
  • Shrinkage (Inventory) Definition
• 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