Specific Identification Method of Inventory Accounting - Explained
What is the Specific Identification Method?
Written by Jason Gordon
Updated at November 23rd, 2021
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Table of Contents
What is the Specific Identification Method?Example of the Specific Identification Method of Accounting for InventoryWhat is the Specific Identification Method?
The specific identification of inventory methods, or SI Method, is where we specifically identify which items of inventory has been sold. This means that we can expense the exact cost of the item being sold.
This method is usually only practical for businesses that have high price low turnover inventory.
As a sale occurs COGS or cost of goods sold is charged with the actual or invoice cost leaving the actual cost of inventory on hand still in the inventory account.
Example of the Specific Identification Method of Accounting for Inventory
Delta company is selling items of inventory that cost us 25 a piece to bring them in. We later bought a separate batch for 27 dollars a piece. Later, we bought another batch for 13 dollars each.
Delta company sold 29 units. 6 units came from the 1st batch at $25 each. 12 units came from the second batch at $27 each. 11 units came from the third batch. Because I know the specific units being sold, I can use the specific identification method.
I would multiple the units sold by the value and add them all together. This will give use our COGS. We can easily calculate the remaining value of inventory by subtracting this amount from the total value of inventory.
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