Course Outline
Join PRO

How can I determine the inventory methods used by other companies in my industry?

Author:
Harold Averkamp, CPA, MBA

Definition of Inventory Methods

Inventory methods refers to the order or manner in which a company moves its actual costs out of the current asset inventory and to the cost of goods sold, which is reported on its income statement.

Since the costs of products may be higher when they are reordered/purchased, the order in which their costs are removed from inventory will have an impact on the inventory valuation and the amount reported as the cost of goods sold (and therefore the gross profit, operating income, net income).

The order in which the costs are removed from inventory is referred to as the cost flow assumption. It is important to understand that the cost flow does not have to agree with the order in which the goods are physically removed from inventory.

Examples of Inventory Methods

The following are only a few of the many cost flow assumptions used for valuing inventory:

  • Form 10-K. The Summary is likely the first or second item in the Notes to the Financial Statements.

    Most publicly traded corporations have an Investors Relations link on their website’s home page. On the Investors Relations page you will find a link to the corporation’s annual SEC filings.

Join PRO to Track Progress

Advance Your Accounting and Bookkeeping Career


  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video
Certificates of Achievement

Earn Our Certificates of Achievement

Certificates of Achievement
  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
View PRO Plus Features

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 2,645 Testimonials

Course Outline
Take the Tour Join Pro Upgrade to Pro Plus