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Specific Identification Method - Inventory Methods in Financial Accounting

The specific identification method identifies the cost of each item in ending inventory. It can be used only when it is possible to identify the units in ending inventory as coming from specific purchases. For instance, if the April 30 inventory consisted of 100 units from the April 1 inventory, 200 units from the April 6 purchase, and 140 units from the April 25 purchase, the specific identification method would assign the costs as follows:

Periodic Inventory System—Specific Identification Method

The specific identification method may appear logical, and it can be used by companies that deal in high-priced articles, such as works of art, precious gems, or rare antiques. However, most companies do not use it for the following reasons:

1. It is usually impractical, if not impossible, to keep track of the purchase and sale of individual items.

2. When a company deals in items that are identical but that it bought at different prices, deciding which items were sold becomes arbitrary. If the company were to use the specific identification method, it could raise or lower income by choosing the lower- or higher-priced items.

• Lower-of-Cost-or-Market (LCM) Rule
• Cost Flow Assumptions
  • Specific Identification Method
  • Average-Cost method
  • First-in, First-out (or FIFO) method
  • Last-in, First-out (LIFO) inventory method
  • Financial Statement Effects of Inventory Method
• The Choice of Inventory Method
• Valuation of Inventories at Lower of Cost or Market
• The inventories of manufacturers
• Analysis of Inventories
• Comparing LIFO and FIFO Firms

Current Assets Topics

• Cash and Cash Equivalents
• Marketable Securities
• Accounts Receivable
• Inventory
• Prepaid Expenses