Specific identification method
from class:
Financial Accounting I
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
- Used primarily for unique, high-value items such as cars or real estate.
- Enables precise matching of costs with revenues by assigning specific costs to individual items sold.
- Not practical for businesses with large volumes of indistinguishable goods.
- Complies with the matching principle in accounting by accurately reflecting cost of goods sold and ending inventory value.
- May result in more volatile financial statements due to varying individual item costs.
Review Questions
- What types of businesses are most likely to use the specific identification method?
- How does the specific identification method comply with the matching principle?
- Why might this method result in more volatile financial statements?
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