Inventory Cost Flow Assumptions
Assigning Costs to Inventory
Cost flow assumptions determine how inventory costs are assigned to cost of goods sold and ending inventory. These assumptions do not necessarily reflect the physical movement of goods.
Note
LIFO is permitted under U.S. GAAP and tested on the CPA FAR exam, although it is prohibited under International Financial Reporting Standards (IFRS).
Summary
Cost flow assumptions determine the cost assigned to inventory and cost of goods sold without requiring the physical flow of inventory to match.