Inventory accounting

Definition

Inventory accounting is the process of valuing and tracking a company's inventory throughout the production and sales cycle. It includes methods to calculate the cost of goods sold (COGS) and ending inventory.

5 Must Know Facts For Your Next Test

1. The four main inventory valuation methods are FIFO, LIFO, Weighted Average Cost, and Specific Identification.
2. FIFO (First-In, First-Out) assumes the oldest inventory items are sold first.
3. LIFO (Last-In, First-Out) assumes the newest inventory items are sold first.
4. Weighted Average Cost calculates an average cost for all units available during the period.
5. Specific Identification tracks the actual cost of each individual item in inventory.

Related terms

Cost of Goods Sold (COGS): The direct costs attributable to the production of goods sold by a company.

Perpetual Inventory System:

A method that records real-time transactions of inventory as they occur.

Periodic Inventory System:

A method where updates to inventory and COGS are made periodically at specific intervals.