What you’ll learn to do: Establish the cost of items in inventory

The term cost flow assumptions refers to the manner in which costs are removed from a company’s inventory and are reported as the COGS. In the U.S., the common cost flow assumptions are First-in, First-out (FIFO), Last-in, First-out (LIFO), and average. Additionally, there are ways to estimate ending inventory, such as the retail inventory method, and it is possible to assign costs to inventory using the actual cost of each item (specific identification method).