Inventory Methods

Companies constantly buy new inventory while selling their old inventory. The company has various options for how it writes off its inventory when selling the product. In other words, we use various methods to determine the cost of goods sold expense.

First, there’s the FIFO method. The FIFO method expenses the oldest purchased items first. The opposite of the FIFO method is the LIFO method. The LIFO method expenses the newest items first. 

Next is the weighted-average method. Under this method, at the end of each period, we find the average cost of our inventory (total costs / number of units). This method follows the periodic method. Lastly is the moving-average method. The moving-average method follows the perpetual method, meaning that after each sale, we calculate our average cost of inventory.