At the end of the year, the cost of goods available amount must be allocated or divided between:
- Products or goods that are in ending inventory. This allocated amount will be reported on the end-of-the-year balance sheet.
- Products or goods that have been sold during the year. This allocated amount will appear on the income statement for the year as cost of goods sold (COGS).
The allocation of the total amount of COGA between ending inventory and COGS will differ depending on a company's cost flow assumption. Three examples of cost flow assumptions are:
- FIFO which assigns the recent unit costs of the purchases to inventory and the oldest unit costs to COGS.
- LIFO which assigns the recent unit costs of the purchases to COGS and the oldest unit costs will remain in inventory.
- Weighted-average which calculates a weighted-average unit cost based on each and all of the units in the COGA and then applies those unit costs to both the units in inventory and the units that have been sold.