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Perpetual Inventory - FIFO, LIFO, and Average Cost definitions

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  • Perpetual Inventory System
    A method where inventory records are updated continuously after each purchase or sale, reflecting real-time inventory levels.
  • FIFO
    A cost flow assumption where the oldest inventory units are considered sold first, impacting cost of goods sold with earlier purchase prices.
  • LIFO
    A cost flow assumption where the newest inventory units are considered sold first, causing cost of goods sold to reflect recent purchase prices.
  • Average Cost Method
    A technique that allocates cost of goods sold based on the average cost of all units available, recalculated after each transaction.
  • Moving Average
    A recalculated average cost per unit in a perpetual system, updated after every inventory purchase or sale.
  • Cost Flow Assumption
    An accounting approach that determines which inventory costs are assigned to cost of goods sold and ending inventory.
  • Cost of Goods Sold
    The total cost assigned to inventory items that have been sold during a period, based on the chosen cost flow method.
  • Physical Flow of Goods
    The actual movement of inventory items, which may differ from the accounting method used to assign costs.
  • Identical Inventory Items
    Units of inventory that are indistinguishable from each other, such as cans of soda, requiring cost flow assumptions.
  • Cost per Unit
    The result of dividing total inventory cost by the number of units available, used in the average cost method.
  • Inventory Record
    A continuously updated log that tracks quantities and costs of inventory on hand in a perpetual system.
  • Purchase Price
    The amount paid to acquire inventory units, which may vary between purchases and affect cost calculations.
  • Accounting Process
    The systematic approach to recording, classifying, and summarizing inventory transactions using cost flow methods.