## Understanding Inventory Costs & Item Management This article explains how AssetBlaze helps you manage your inventory more accurately, from tracking the cost of your goods to handling items that are no longer actively stocked. | Select your organization's Inventory Costing method in **Global Settings -> Accounting** ### Accurate Inventory Costing: Understanding How Your Items Are Valued AssetBlaze supports advanced methods to calculate the cost of your inventory, which is crucial for accurate financial reporting and understanding your profitability. What is Inventory Costing? Inventory costing is how we assign a monetary value to the items you hold in stock and to the items you sell. This value directly impacts your financial statements (e.g., Cost of Goods Sold, Inventory Asset Value). How AssetBlaze Calculates Cost: Your system administrator has chosen a primary method for how your inventory costs are calculated. You might encounter one of the following: 1. **Weighted Average Cost:** This method calculates the average cost of all available units of an item. Every time you receive new items, the system recalculates this average. When items are sold or removed, their cost is based on this current average.**** ***Best For:*** *Businesses with high-volume, homogenous items where tracking individual item costs is impractical.* 2. **First-In, First-Out (FIFO):** This method assumes that the first items you purchased are the first ones you sell. So, if you bought items at different prices over time, the oldest costs are used first for items that leave your inventory. ***Best For:*** *Businesses with perishable goods, or those where maintaining the physical flow of goods is important. Often results in higher reported profits during inflation.* 3. **Last-In, First-Out (LIFO):** (Note: May not be available depending on regional accounting standards, e.g., not allowed under IFRS.) This method assumes that the *last* items you purchased are the first ones you sell. This means the newest costs are used for items leaving your inventory. ***Best For:*** *Businesses looking to match their most recent costs against current revenues, often resulting in lower taxable income during inflation.* **Why This Matters to You:** While the system handles the complex calculations, understanding these methods helps you interpret reports and ensure accurate data entry, especially during manual adjustments. ||| Your inventory costing method is a fundamental accounting setting that impacts all historical financial data. To ensure accurate reporting and audit trails, this setting becomes permanently locked after your first inventory transaction. For assistance, please reach out to our support team.