Specific identification

Definition

Specific identification is an inventory valuation method that tracks the cost of each specific item sold and remaining in inventory. It is typically used for high-value or unique items where each item's cost can be individually identified.

5 Must Know Facts For Your Next Test

1. This method requires detailed record-keeping of each individual item purchased and sold.
2. Specific identification provides the most accurate matching of actual costs with revenues as it assigns the actual cost of each item to the cost of goods sold.
3. It is often used in businesses dealing with expensive, one-of-a-kind items such as jewelry, cars, or real estate.
4. This method may not be practical for companies with large volumes of similar items due to its complexity.
5. Under specific identification, ending inventory consists of the actual costs of the remaining unsold items.

Review Questions

• What types of products typically use the specific identification inventory valuation method?
• How does specific identification differ from other inventory valuation methods like FIFO and LIFO?
• Why might a company choose not to use specific identification?

Related terms

FIFO:

First-In, First-Out (FIFO) is an inventory valuation method where the oldest inventory items are recorded as sold first.

LIFO:

Last-In, First-Out (LIFO) is an inventory valuation method where the most recently produced or purchased items are recorded as sold first.

Weighted Average Cost:

This method calculates an average cost per unit by dividing total costs by total units available for sale during a period.