Specific identification method

Definition

The specific identification method is an inventory valuation approach where each item in inventory is tracked individually. This method matches each unit of inventory with its actual cost.

5 Must Know Facts For Your Next Test

1. Used primarily for unique, high-value items such as cars or real estate.
2. Enables precise matching of costs with revenues by assigning specific costs to individual items sold.
3. Not practical for businesses with large volumes of indistinguishable goods.
4. Complies with the matching principle in accounting by accurately reflecting cost of goods sold and ending inventory value.
5. May result in more volatile financial statements due to varying individual item costs.

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Related terms

FIFO:

An inventory valuation method where the first items purchased are assumed to be the first sold.

LIFO:

An inventory valuation method where the last items purchased are assumed to be the first sold.

Weighted Average Cost Method: An inventory valuation approach that averages out all purchase costs for items available for sale.