Each industry is different in determining costs of goods sold or cost of services rendered. Retail uses two distinct methods to calculate costs of goods sold. The first is called ‘Specific Identification’ whereby each item sold is specifically identified to its recorded cost. The second method is referred to as ‘Inventory Adjustment’ format. In this method, a beginning and ending balance is recorded along with the purchases throughout the year.
Average Costing Method
Average costing method is a variation of the inventory adjustment method of calculating the cost of goods sold in retail. In general, it is the most reasonable variation to use but does require some accounting prowess for the staff to calculate the average cost of the remaining inventory.