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Home >> Inventory Accounting Topics

The Specific Identification Method

Specific Identification Method Overview

The specific identification method refers to the tracking and costing of inventory based on

the movement of specific, identifiable inventory items in and out of stock. This method is

applicable when individual items can be clearly identified, such as with a serial number,

stamped receipt date, or RFID tag.

Specific Identification Method Requirements

The principle requirements of a specific identification tracking system are:

Be able to track each inventory item individually. The easiest method is a durable metal

or paper label that contains a serial number. Alternatively, a radio frequency

identification tag can contain a unique number that identifies the product.

Be able to track the cost of each item individually. The accounting system should clearly

identify the cost of each purchased item, and associate it with a unique identification

number.

Be able to relieve inventory for the specific cost associated with an inventory item when

it is sold.

These requirements can be achieved with a simple accounting system, possibly just an

electronic spreadsheet, which makes the specific identification method applicable to smaller

businesses.

Specific Identification Method Advantages and Disadvantages

The specific identification method introduces a high degree of accuracy to the cost of

inventory, since the exact cost at which something was purchased can be recorded in the

inventory records, and charged to the cost of goods sold when the related item is sold.

However, this method is rarely used, because there are few purchased products that are

clearly identified in a company's accounting records with a unique identification code. Thus,

it is typically restricted to unique, high-value items for which such differentiation is needed.

Most organizations instead sell products that are essentially interchangeable, and so are

more likely to use a FIFO, LIFO, weighted average, or similar system.

It is also very time-consuming to track inventory on an individual unit basis, which restricts

its use to smaller inventory quantities.

Examples of Specific Identification Method Usage

Examples of situations in which the specific identification method would be applicable are a

purveyor of fine watches or an art gallery.

Related Topics

FIFO vs. LIFO accounting

O p e r a t i o n a l A c c o u n t i n g T o p i c s

Specific Identification Method - AccountingTools

http://www.accountingtools.com/specific-identification-method[3/29/2015 11:39:23 AM]

First-in first-out method

Last-in first-out method

Weighted average method

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