Inventory Methods

In accounting, there are four ways to make an inventory. They are for the specific identification, first in first out (FIFO), last in first out (LIFO), and the weighted average. I will discuss how to use the four methods and the advantages and disadvantages of each method. First I start with the specific identification method. This is probably the easiest to use because it will tell you exactly are the costs for each unit is sold. Most companies use this method, car dealers, manufacturers or companies with a turnover relatively low at a higher price in U.S. dollars. An example of what we can say that you start with 5 units at $ 100 and buy 6 units for $ 105. They then sell 3 units for $ 100 and another two for $ 105, you must include the sale and left with 2 units of $ 100 and $ 4105. This specific identification each time you make a sale, the number of units and unit costs is always given.

How to record adjacent warehouse is the first in first out method or FIFO. In this method means that the first item purchased first item sold below. Let's say for the first time the purchase of seven units at a price of $ 80. They then decided to acquire another 8 to $ 90. Later this week, they sold a total of 10 units, and you want to use the FIFO method. They received the first 7 units at $ 80 and $ 90 for 3 units. We are then left with 5 units of $ 90. Then, when you buy 5 units of additional $ 95 if you go, will go to the next group that begins with the five units at a cost of $ 90 for sale, and then the units at a single price of $ 95. When using FIFO when the first units purchased and move, then pull the most modern equipment. FIFO is probably the type most commonly used to inventory, because every company can use this simple method.

Another method is to record the inventory LIFO or last in, first out. This method is not generally used by companies because it keeps more entries for the closing balance. The manner of reporting LIFO is when a company starts with an initial inventory of 10 items on the next purchase of $ 75 is done is the first to leave. If the company buys 6 items $ 80 and then sell 10 items, go to 6 points on the $ 80, then add 4 to $ 75. What remains is 6 units for $ 75 and if someone else is buying these units would be sold before 6 units are used for $ 75.

The last method to save the risk weighted assets. This method takes the average cost of the plants offered for sale, and that number is divided by the number of units on hand, and the cost per unit. Suppose a company has an inventory of 10 units start at $ 100 and then buy 5 units of $ 105. Start finding the right balance of the total portfolio is $ 1525, then divided that number by the total number of units, which is 15 If the company for $ 101.67, the cost per unit. The company then sells 8 units, the cost of each unit is $ 101.67 and you're left with 7 units at $ 101.67. She decides to buy up to $ 5 103 units have now found the new cost per unit. The entire stock of books is $ 1,226.69 and the total number of units is 12 after cleavage of the inventory of books by the number of units of cost per unit is $ 102.22 new. If the company and the sale of each unit sold will be $ 102.22. One good thing about the weighted average method is that it smooths large differences in price changes throughout the period.

If a company uses one of these methods, the method should continue to use the same period by period, so that decides the consistency in the files. This is consistent concept known. The most common method of inventory is FIFO, LIFO is the second, by the weighted average, monitoring, and the less common method is specific identification.