FIFO (First In First Out) is when the units purchased first or in balance are sold first.

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FIFO (First In First Out) is when the units purchased first or in balance are sold first. Therefore, the cost of the inventory purchased first is assigned to the cost of goods sold.

In an inflationary environment, the cost of goods sold will have less expensive items, and the ending inventory(asset) will have more expensive items. Therefore, the net income will be higher. Further, under a deflationary environment, FIFO will generate lower net income.

LIFO ( Last In First Out) is when the units purchased at last are sold first. Therefore, the cost of the inventory purchased last is assigned to the cost of goods sold.

In an inflationary environment, the cost of goods sold will have more expensive items, and the ending inventory (asset) will have less expensive items. Therefore, the net income will be lower. Further, under a deflationary environment, FIFO will general higher net income.

Under the weighted average method, each item's cost is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period.

In a rising price environment, the net income will be lower as the cost will be higher and vice versa when the prices are falling.

Under a specific identification method, each item in inventory can be identified with a specific purchase and invoice. The specific identification method can also be used to assign costs. The specific identification method's disadvantage is the requirement of sales records to identify exactly which items are sold and when.

The effect of net income under this method depends on the changes in the inventory items' acquisition costs. This method is not practical for businesses that deal with hundreds of different items in stock. Hense, FIFO, LIFO, and weighted average are preferred over the specific identification method.

* you mentioned specific identification can be used to assign course and you also mentioned that the disadvantage of using the specific occasion is because records must be available to identify exactly which items are sold.

Question: when would it be appropriate to use specific identification and what type of products require the specific identification method of inventory costing?