Simple Summary

• The perpetual method of inventory involves tracking each individual item of inventory on a minute-to-minute basis. It can be expensive to implement, but it improves and simplifies accounting.
• The periodic method of inventory involves doing an inventory count at the end of each period, then mathematically calculating Cost of Goods Sold.
• FIFO (first-in, first-out) is the assumption that the oldest units of inventory are sold before the newer units.
• LIFO (last-in, first-out) is the opposite assumption: The newest units of inventory are sold before older units are sold.
• The average cost method is a formula for calculating CoGS and ending inventory based upon the average cost per unit of inventory available for sale over a given period.