Why do companies use the specific identification method?
The companies which deal with high-value items such as jewelry, handicrafts, etc. mainly use the Specific identification method as it keeps a record of each of such items having a high value.
What is the identification method in accounting?
The identification method is mainly used to keep track of items that aren’t basically ordinarily interchangeable for goods and services produced for specific projects. The three methods described above and the LIFO i.e. last-in/first-out (LIFO) method are allowed by US GAAP.
What is the specific identification inventory valuation method?
The specific identification inventory valuation method is a mechanism for tracking each individual item in an inventory from the time it enters the inventory until it departs it. This distinguishes the method from LIFO and FIFO, which group inventory together depending on when it was purchased and how much it cost.
What are the requirements for specific identification?
Under the specific identification method, it’s also necessary that the cost of each purchased item can be determined on an individual basis. The cost must be easily associated with a number or other identifying feature of the item so that it can be directly connected to that item.
What is an example of specific identification method?
Example of Specific Identification Method The inventory manager suggests that the closing inventory of 4000 units includes 1000 units from the purchases on 01-06-2019, 2000 units from purchases made on 16-06-2019, and 1000 units from the purchases made on 30-06-2019.
Why don t all companies use specific identification?
This method is rarely used, because there are few purchased products that are clearly identified in a company's accounting records with a unique identification code. Thus, it is typically restricted to unique, high-value items for which such differentiation is needed.
Which condition would most likely warrant the use of specific identification method?
Terms in this set (13) Which of the following would most likely employ the specific identification method of inventory costing? Solution: Jewelry stores use the specific identification method because of the high value and uniqueness of many of the inventory items.
Is FIFO a specific identification method?
FIFO (first in, first out) is the default method used when selling securities by brokerages, the IRS and GainsKeeper. FIFO sells your oldest lots first. The Specific ID method allows you to specify which shares you are selling.
For which type of merchandise would a company most likely use the specific identification method of inventory costing?
Understanding Specific Identification Inventory Valuation Method. Specific identification inventory valuation is often used for more expensive items such as furniture or vehicles. It also is used when the products stored have widely different features and costs.
Is GAAP a specific identification?
IFRS and US GAAP allow companies the choice of using either of the following inventory valuation methods: specific identification; first-in, first-out (FIFO); and weighted average cost. US GAAP also allows the use of the last-in, first-out (LIFO) method.
What is specific identification method and when is it appropriate to use?
The specific identification method relates to inventory valuation, specifically keeping track of each specific item in inventory and assigning costs individually instead of grouping items together. It is useful and usable when a company is able to identify, mark, and track each item or unit in its inventory.
Which of the following items would most likely be accounted for using the specific identification inventory method?
Which of the following items would most likely be accounted for using the specific identification inventory method? - The specific identification method of inventory valuation is most appropriate for very small businesses or businesses with very expensive items and unique items (i.e., jewelry store, art store).
Which method of inventory valuation is most widely used in accounting?
Inventory valuation allows you to evaluate your Cost of Goods Sold (COGS) and, ultimately, your profitability. The most widely used methods for valuation are FIFO (first-in, first-out), LIFO (last-in, first-out) and WAC (weighted average cost).
Which inventory method would a car dealership use for tracking the purchase of a used car and why?
Since inventory purchases make up a large portion of their expenses, auto dealerships use the LIFO method to calculate their cost of goods sold.
Is specific identification the same as LIFO?
16:0934:28FIFO Vs LIFO Vs Specific identification Method Vs Weighted Average ...YouTubeStart of suggested clipEnd of suggested clipSo your inventory is old but your cost of goods sold is recent so this is recent or no and yourMoreSo your inventory is old but your cost of goods sold is recent so this is recent or no and your inventory is old. But this is the this is the feature of LIFO. So again we use in the same exact.
Why a company should use a FIFO inventory system What are the benefits of using this method?
The advantages to the FIFO method are as follows: The method is easy to understand, universally accepted and trusted. FIFO follows the natural flow of inventory (oldest products are sold first, with accounting going by those costs first). This makes bookkeeping easier with less chance of mistakes.
Example of Specific Identification Method in Accounting
Company Y ltd. is dealing with the trading of the different pens in the market. During August 2019, the following transactions took place in the company.
Advantages
The first and most important advantage of using the Specific identification method is that it helps the business in keeping track of every item of the inventory used in the company from the time such inventory comes in the business till the time it goes out of business.
Disadvantages
As it tracks every item of the inventory used in the company from the time such inventory comes in the business till the time it goes out of business is kept, so it requires lots of effort and time of the person who is responsible for such tracking.
Important Points
Under this method, every item sold during the period and every item that remains as part of the inventory of the company is identified and assigned the cost separately.
Conclusion
Specific Identification Method is one of the vital inventory valuation Inventory Valuation Inventory Valuation Methods refers to the methodology (LIFO, FIFO, or a weighted average) used to value the company's inventories, which has an impact on the cost of goods sold as well as ending inventory, and thus has a financial impact on the company's bottom-line numbers and cash flow situation.
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Explanation
The feature of individual tracking is what distinguishes specific identification methods from last in first out (LIFO) and first in first out (FIFO) methods in which inventory items are grouped based on the time of purchase and cost.
Specific Identification Method Requirements
There are some requirements for the implementation of the specific identification method in an organization as follows:
Conclusion
The fact cannot be denied that the specific identification method is one of the important methods of inventory valuation. It is generally beneficial for start-ups or smaller businesses where they have a lower volume of inventory as well as sales. It helps them understand where the inventory item, i.e.
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What is specific identification?
In accounting, specific identification is a strategy for calculating ending inventory costs for a business. It involves a physical count of all products the company has sold in a particular period and those remaining. This record helps accountants determine the type and amount of items that customers purchased on a specific date.
What is the specific identification method?
The specific identification method is a process that finance professionals use to track when items enter and leave a company's inventory. They apply this method when tracking and counting items using a standardized system like bar codes, serial numbers and stamped receipt dates.
How is the specific identification method used?
An accountant can use the specific identification method to help their company monitor its inventory, track sales and reduce liabilities. Companies typically use this method to manage expensive inventory, such as vehicles, jewelry or furniture.
Disadvantages of the specific identification method
While this method is an effective inventory management tool for many companies, here are a few ways in which it may be challenging for a company to implement:
What is the Specific Identification Method?
In the Specific Identification Method, as the name implies, every specific item in the inventory is identified and valued individually for as long as it remains in the inventory.
Inventory Valuation using the Specific Identification Method
A requirement of the Specific Identification Method is that it should be possible to track each item individually as it enters your inventory, makes its way through it and finally exits the inventory.
Example s
A jewelry store carries necklaces, earrings, pendants, rings and other expensive jewelry made from diamonds, emeralds, rubies, sapphires and other precious stones.
What is specific identification method?
Specific identification method can be applied in situations where different purchases can be physically separated. Under this method, each item sold and each item remaining in the inventory is identified. The cost of specific items that are sold during a period is included in the cost of goods sold for that period and the cost of specific items remaining on hand at the end of a period is included in the ending inventory of that period.
What are the advantages and disadvantages of specific identification method?
Advantages and disadvantages: The main advantage of this method is that, flow of cost corresponds to the physical flow of inventory. In other words, actual costs are matched against revenues. The main disadvantage of using specific identification method is that, the net income can be easily manipulated under this method.
What is the specific identification method?
The specific identification method keeps track of every item in an inventory and accounts for their cost individually, rather than using estimations. This is an extension of inventory valuation, an accounting process that assesses business inventory.
How the specific identification process works
There are several processes that companies can follow when using this method to identify, mark, and track all items in their inventory. Some companies use technology to create a database that contains the items in their inventory. Other companies may use a process where an employee tracks the items by recording them on a sheet of paper.
Benefits of the specific identification process
Here are some of the key benefit of using the specific identification process:
Disadvantage of the specific identification process
The main disadvantage of the specific identification process is that it requires unique signifiers, or identification, for each item. Large companies and organizations have extensive inventories and manage multiple transactions at the same time.
Requirements necessary for the specific identification process
Here is a list of requirements necessary for this method to work for your business:
Examples where you can use the specific identification approach
Here are two example scenarios where you can use the specific identification approach as either an individual employee or on behalf of the company:
How to calculate inventory cost
Here are the steps that you can follow to calculate your inventory cost:
What is the Specific Identification Inventory Valuation method?
The specific identification inventory valuation system allows you to track every item in your inventory from the moment it is added until removed. This is different from LIFO and FIFO, which group pieces of inventory based on their cost.
Understanding the Specific Identification Method
When a company can identify, mark and track every item in its inventory, the specific identification method is effective and useful. Larger companies can use the specific identification method with electronic tags or stickers that have serial numbers. However, A smaller businesses are most likely to be able to identify and count inventory items.
How to use specific identification method ?
One of the mostly known accounting methods mainly used for the valuation of the inventory. Where this method is used to track of each and every item of the inventory which is used in the company. It is kept, from the time such inventory comes in the business for storage of inventory.
Example of Specific Identification Method in Accounting
Company A ltd. is mainly dealing with the trading for different type of basket in the market. During Sep2021 , the following are the transactions took place in the company.
How to find Specific Identification Method in Accounting from above Example ?
They are accounting for species identification as a method to determine inventory costs. This method relies on the movement specific, identifiable inventory items within an out-of-stock condition. This method can be used if individual items can be identified by a serial number and stamped receipt date or RFID tag.
When should specific identification method be used?
The specific identification method is mainly used to basically track individual items of a inventory. This is a method is applicable when a individual items can be also clearly identified, such as with a series of serial number, a stamped receipt date , a RFID tag or a bar code.
Is specific identification method GAAP?
The identification method is mainly used to keep track of items that aren’t basically ordinarily interchangeable for goods and services produced for specific projects. The three methods described above and the LIFO i.e. last-in/first-out (LIFO) method are allowed by US GAAP.
Understanding The Specific Identification Method
- The specific identification method is useful and usable when a company is able to identify, mark, and track each item or unit in its inventory. While the specific identification method can be utilized by larger companies with electronic tags or stickers with serial numbers that can be scanned into an electronic inventory tracking system, it is most...
The Pros and Cons of The Specific Identification Method
- The primary drawback to the specific identification method is that its use requires a definitive ability to easily and consistently identify all the individual items within a company’s inventory, track their cost, and produce them upon sale or the promise of sale. Both the cost of the itemand the amount received for the sale of the item must be attached to a specific item with some for…
Additional Resources
- CFI offers the Financial Modeling & Valuation Analyst (FMVA)®certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: 1. Cost of Goods Sold (COGS) 2. Economic Order Quantity (EOQ) 3. LIFO vs. FIFO 4. Operating Cycle
What Is The Specific Identification Inventory valuation Method?
Understanding The Specific Identification Method
Specific Identification Method Requirements
How Does The Specific Identification Method Work?
- The specific identification method can be used by an accountant to assist their organization in monitoring inventory, tracking sales, and reducing liabilities. This method is frequently used by businesses to manage expensive inventory such as vehicles, jewelry, or furniture. Using this method, accountants or inventory specialists identify the thing...
Specific Identification Inventory valuation Method Examples
Conclusion
Specific Identification Method FAQs
Example of Specific Identification Method in Accounting
Advantages
Disadvantages
Important Points
- Under this method, every item sold during the period and every item that remains as part of the company’s inventory is identified and assigned the cost separately. After that, the cost of the speci...
- Companies that deal with high-value items such as jewelry, handicrafts, etc., mainly use the Specific identification method as it keeps a record of each of such items having a high value.
Conclusion
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Explanation
Example of Specific Identification Method
Specific Identification Method Requirements
Advantages
Disadvantages
Conclusion
- The fact cannot be denied that the specific identification method is one of the important methods of inventory valuation. It is generally beneficial for start-ups or smaller businesses where they have a lower volume of inventory as well as sales. It helps them understand where the inventory item, i.e. on which stage and how much revenue has resulte...
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What Is Specific Identification?
What Is The Specific Identification Method?
How Is The Specific Identification Method used?
- An accountant can use the specific identification method to help their company monitor its inventory, track sales and reduce liabilities. Companies typically use this method to manage expensive inventory, such as vehicles, jewelry or furniture. When using this technique, accountants or inventory specialists identify the items that the company has s...
Disadvantages of The Specific Identification Method