Inventory is initially recorded at cost. Inventory is carried on a company's books at whichever cost is lower: market or original purchase cost. Inventory can subsequently be written down to the market cost if the market value is less than the inventory's current carrying value. There are four different methods to adjust inventory; FIFO, LIFO, Average Cost, and Specific Identification. Although all four methods are described below, only the first three are supported in Aptify:

First-In, First-Out (FIFO)

Under FIFO, the earliest costs incurred are included in the cost of goods sold and the latest costs are included in the ending inventory. In an inflationary economy, this results in the inventory always carrying a higher per unit value than the Cost of Goods Sold.

Average Cost

The Average Cost method considers all the costs and units to be commingled so that no individual units or costs can be identified. In a perpetual inventory system, the average cost is actually a moving average where a new average cost must be calculated after each purchase.

Last-In, First-Out (LIFO)

The latest costs incurred are included in the cost of goods sold and the earliest costs are included in the ending inventory. In an inflationary economy, this results in the inventory always carrying a lower per unit value than the Cost of Goods Sold.

Specific Identification

When an inventory is made up of higher priced items such as real estate, paintings, automobiles, and so on, it may be more appropriate to use the Specific Identification method. This method works best when each item in the inventory has a unique purchase cost. In situations where the inventory is made of many identical items, this method becomes more difficult and is less practical, as identical items rarely need individual prices.