Inventory costing: FIFO, weighted average, write-downs and shrinkage
For bookkeepers, inventory and stock controllers, accounts assistants and small business owners who keep a perpetual stock system and close the books. Prerequisite: 'Inventory, stock counts and cost of sales' (the cost of sales formula, counts, cut-off and periodic FIFO and weighted average). This course goes further: what goes into the cost of an item, perpetual FIFO and moving weighted average stock cards, measuring and recording shrinkage after a count, lower of cost or market and goods that can't be sold, and how FIFO and LIFO differ and when a method may change. Tax rules quoted are US federal (IRS Publication 538); financial reporting rules (US GAAP or IFRS) can differ, as noted. This course does not grant an accounting qualification, and it is not tax advice or legal advice: your accountant chooses and changes the method.
- Level
- Intermediate
- Length
- About 96 minutes
- Contents
- 5 lessons · final exam
- Status
- Published · updated 10 Oct 2026
Skills you'll practise
- Calculate the cost of purchased inventory, including trade discounts and freight, and decide which goods belong in inventory
- Calculate cost of sales and closing inventory with perpetual FIFO and moving weighted average stock cards
- Calculate shrinkage by comparing book inventory with a physical count, and record the adjustment
- Value damaged, obsolete and declining-price stock using lower of cost or market item by item
- Explain how FIFO and LIFO differ when prices change and what consistency requires before changing method
Course outline
- 1.Calculating the cost of purchased inventory and deciding which goods belong in inventoryLesson · 18 min
- 2.Calculating cost of sales with perpetual FIFO and moving weighted average stock cardsLesson · 22 min
- 3.Calculating shrinkage by comparing book inventory with a physical count, and recording the adjustmentLesson · 18 min
- 4.Valuing damaged, obsolete and declining-price stock using lower of cost or marketLesson · 18 min
- 5.Explaining how FIFO and LIFO differ when prices change, and what consistency requiresLesson · 12 min
- 6.Inventory costing: FIFO, weighted average, write-downs and shrinkage: knowledge checkKnowledge check · 13 questions
- 7.Inventory costing: FIFO, weighted average, write-downs and shrinkage: practical exerciseKnowledge check · 1 question
- 8.Final exam10 questions · passing it completes the course, so people who already know the material can test out
Sources it draws on
The lessons and questions are written from these references, so learners can go back to the original.
- IRS Publication 538 (01/2022), Accounting Periods and Methods: Inventories
- OpenStax, Principles of Accounting, Volume 1, 10.1 Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow Assumptions
- OpenStax, Principles of Accounting, Volume 1, 10.3 Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method
- OpenStax, Principles of Accounting, Volume 1, 10.4 Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income Statement and Balance Sheet
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