Costing Methods

CustomBooks™ offers two Costing Methods, Weighted Average (Default) and FIFO.

Weighted Average

In accounting, the Weighted Average costing method of inventory valuation calculates the Cost of Goods Sold (COGS) using a weighted average. This method determines the cost per unit by dividing the total cost of goods available for sale by the total number of units available for sale.

FIFO (First-In, First-Out)

FIFO (First-In, First-Out) is an inventory costing method that assumes the earliest items added to inventory are sold first. As a result, the ending inventory consists of the most recently acquired goods. FIFO determines item costs by assuming that the oldest inventory (first purchased) is sold first. This means the cost of goods sold (COGS) reflects the earliest purchase prices, while the ending inventory consists of the most recent cost.

Setting Up Costing Method

To set up an item's Costing Method during creation:

1. Go to the Setup tab.
2. Click the Costing Method drop-down menu.
3. Select Weighted Average or FIFO.
   
   
   

Once an item is saved, its Costing Method can no longer be changed. If a different Costing Method is needed, it is best to create a new item with the correct method and deactivate the old one.

Changing costing methods can significantly impact your financial reporting and may require IRS approval. It is recommended that you consult your tax advisor before making any changes.

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