The difference is the gross profit. At the end of the year, inventory is counted and COGS is determined. The COGS is then used in the Income Statement. Average Cost values all merchandise the same units sold and units remaining in inventory valued at the Average per-unit cost Average cost is computed after every purchase.
Every item is assigned the same average cost.
Therefore remaining inventory consists of the most recently purchased items. Inventory on balance sheet is closest to current replacement cost. Therefore, remaining inventory consists of the oldest inventory. Current costs are better matched up with selling price. These four alternative inventory valuation methods will lead to different figures for COGS, Inventory, Gross Profit, Net Income, and Retained Earnings.