The Best Inventory Costing Method for Your Business (FIFO, LIFO vs. Moving Average)

If you sell physical products, inventory is more than stock sitting on a shelf. It’s a major asset that can directly affect your profits, taxes, and financial reporting. But how do you actually put a value on all that inventory? And why can the same inventory lead to very different numbers on your books?

Description Key takeaways

About this episode

In this episode, we break down the fundamentals of inventory valuation and explain how price, cost, and Cost of Goods Sold (COGS) fit together. We take a closer look at the three most common inventory costing methods—FIFO, LIFO, and Moving Average Cost—and explore how each one can affect your financial statements and profitability.

We also unpack the key differences between IFRS and GAAP, discuss which industries and business situations may benefit from different costing methods, and share practical advice for choosing the right approach for your business.

Whether you're tracking inventory in spreadsheets, evaluating inventory software, or simply trying to make better sense of your financial statements, this episode will help you connect the dots between inventory operations and accounting.

Resources

Inventory Valuation Methods FIFO vs. LIFO Moving Average Inventory Accounting Visit resources page

Key Takeaways

Inventory valuation impacts your bottom line: How you value inventory can affect your profits, taxes, and financial statements.
Price and cost serve different purposes: Price is what you charge customers, while cost is what you pay for inventory—and the difference affects your profit and COGS.
Your costing method affects your numbers: FIFO, LIFO, and Moving Average can produce different inventory values, COGS, and profitability.
Accounting standards limit your options: IFRS and GAAP have different rules for which inventory costing methods businesses can use.
Spreadsheets have their limits: As inventory operations grow, manual processes can make it harder to maintain accurate, up-to-date records.
Inventory and accounting need to work together: Connected systems help keep inventory data accurate and make financial reporting more reliable.