Cost of inventory

In this lesson

1. 0:00 Cost of inventory methods overview
2. 0:31 FIFO method explained
3. 1:01 Average cost methods explained
4. 2:00 Worked example setup
5. 2:50 FIFO calculation step by step
6. 4:20 Periodic Avco calculation step by step
7. 6:15 Continuous Avco calculation step by step
8. 8:37 Comparing results across methods
9. 9:28 Consistency requirements and standards
10. 10:10 Periodic vs continuous recording methods

About this lesson

This lesson walks you through the step-by-step process for each approach—including both periodic and continuous AVCO methods—and shows you why choosing the right method matters for your financial statements. Understanding these techniques is essential for accurate inventory valuation and will directly support your exam performance and real-world accounting practice. The lesson uses a practical worked example to demonstrate how FIFO assumes the oldest stock is sold first, leaving the most recent purchases in closing inventory. For AVCO, you'll see how the periodic method calculates one average cost for the entire period, while the continuous method updates the average each time inventory is purchased or produced. The video highlights a critical point: different methods produce different inventory values and cost of sales figures, which directly impact reported assets and profit—so consistency in your chosen method is essential. You'll also explore the practical differences between these approaches. FIFO is straightforward to apply but can be complex in high-volume environments. Periodic AVCO is simpler and suits smaller organisations with less sophisticated systems, while continuous AVCO provides better inventory control for larger businesses but requires more detailed record-keeping. By the end, you'll understand not just how to calculate these values, but when and why each method is appropriate—knowledge that strengthens both your exam answers and your ability to advise on real accounting decisions.

Duration: 11m