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It is pretty straight forward, take the inventory at hand at the start of the reporting period and add any new inventory purchases and then subtract the cost of any inventory that has been sold. Inventory valuation and management is a very important part of managing the current assets account on the balance sheet. FIFO matches up sales with inventories in a sequential manner by matching the revenues from the first sale with the costs associated with the first product that was made. The first sale is matched against the last product produced and therefore, the last good sold will be matched up with the first good produced. Basically, LIFO is assuming that a company sells off its last product produced, first. The diagram below takes the same example from above and depicts LIFO inventory management. The average cost method of inventory management is pretty straight forward.
This method values inventory costs as the average unit cost between the assets in the beginning inventory and the newly acquired assets. There is no inventory matching required. Each item will remain in the inventory until it is sold. 24 hours a day from anywhere in the world. Send this article to a friend. Enter multiple addresses on separate lines or separate them with commas.
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