11. Specific Identification

Let's talk about the specific identification method of inventory costing. This is one of the four types of inventory costing. We've got specific identification, weighted average, FIFO, and LIFO. Specific identification is probably the easiest to make sense of. Specific identification basically just says you're going to identify specifically the cost of each item. So we'll say this one is $5, this one is $7, and this one is $9. And while this is easy to understand and easy to implement, you can only do this in a few situations. Specific identification only makes sense if these items are specific enough. So you have to have relatively big items and relatively unique items.

Think about something like, um, cars or houses, definitely houses. You can identify those specifically by either make and model or address or whatever. So under specific identification, if the cost of these things is $5, $7, and $9, you sell this one for $10, you sell this one for $10, and at the end of the year, you still have this one, well, your cost of goods sold becomes the $5 plus the $7. So your cost of goods sold equals $12, and your ending inventory equals $9, because you specifically identified this one as costing $9. So in your ending inventory, you say $9. And in your cost of goods sold, you say, "I specifically identified this one as costing $5, and this one as costing $7, and I sold both of those, so my cost of goods sold at the end of the year is $12."

This is not a method that's actually used very often, so you don't have to put a lot of effort into this method. It's pretty straightforward, and it's infrequently used. We're gonna see most of our time spent doing weighted average, FIFO, and LIFO.