The specific identification inventory valuation method is an inventory valuation method that uses the specific identification of each unit of inventory to determine its cost. This means that the cost of each unit of inventory is tracked individually, and the cost of each unit is assigned to the unit when it is sold. This method is most commonly used when the inventory consists of unique items that can be easily identified, such as works of art or collectibles.
What does GAAP say about inventory? The generally accepted accounting principles (GAAP) require that inventory be stated at the lower of cost or market. Cost is generally determined using the first-in, first-out (FIFO) method. Market is the replacement cost of the inventory, less any deterioration.
There are two main types of inventory:
1) Raw materials - these are the materials used to create a product and are generally purchased from suppliers.
2) Work-in-progress (WIP) - these are products that are in the process of being completed. WIP inventory generally consists of three stages:
a) Raw materials - these are the materials that will be used to create the product.
b) Manufacturing overhead - this includes the cost of labor and overhead incurred during the manufacturing process.
c) Finished goods - these are products that have been completed and are ready to be sold.
Inventory is a current asset on the balance sheet.
What inventory costing methods are allowed by GAAP? The generally accepted accounting principles (GAAP) in the United States allow for three different inventory costing methods. These are the first-in, first-out (FIFO), last-in, first-out (LIFO), and weighted average methods.
The FIFO method assumes that the first items purchased are the first items sold. This method results in the lowest cost of goods sold (COGS) and the highest ending inventory value.
The LIFO method assumes that the last items purchased are the first items sold. This method results in the highest COGS and the lowest ending inventory value.
The weighted average method assigns a weight to each unit of inventory based on when it was purchased. The weighted average cost per unit is then used to calculate COGS and ending inventory values.
Which of the following methods for valuing inventory would most likely be used for high value items such as cars and houses?
The most likely method for valuing inventory for high value items such as cars and houses would be the market approach. This approach values inventory based on recent sales prices of similar items. This approach is most accurate when there is a large and active market for the items being valued. Is FIFO a specific identification method? FIFO is an inventory valuation method in which the items that are first acquired are also the first to be sold. This method is used to match the costs of goods sold with the revenues generated from the sale of those goods. FIFO is one of several inventory valuation methods that are allowed under generally accepted accounting principles (GAAP).
Which of the following is a reason why the specific identification method? The specific identification method is the most accurate method of inventory valuation, as it assigns the cost of each unit of inventory to the specific sale to which it relates. This means that the reported cost of goods sold will be accurate, and the ending inventory value will also be accurate.
There are a few reasons why a company might choose to use the specific identification method over other inventory valuation methods. First, as mentioned, it is the most accurate method and provides the most accurate financial statements. Second, it is relatively simple to use and does not require a lot of data tracking. Third, it is flexible and can be used in a variety of inventory situations.