CMA Part 1 | Financial Planning  Performance and Analysis | Inventory
Channel: LetsLearn Global
Date: 17/01/2023

Inventory 
nventory is everything a company utilizes to sell or produce products, from finished goods and parts to raw materials. And depending on what goods or services your business provides, inventory can be anything from a piece of material to a finished product.

Inventory Costing Methods

The method companies use to cost their inventory directly guides the income and inventory value they report on their financial statements. Each company chooses a systematic approach to calculating and reporting its inventory turnover, and regulators expect them to stick to that method every year.

There are four main methods to compute COGS and ending inventory for a period.

First In, First Out (FIFO): 
Companies sell the inventory first that they bought first.
Last In, First Out (LIFO): 
Companies sell the inventory first that they bought last.
Weighted Average Cost (WAC): 
Companies average the costs of inventory and how much they sell over the period.
Specific Identification: 
Not technically a cost-flow method but allowable under GAAP, this option often uses serial numbers to differentiate products and their inventory cost specifically.


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