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Companies such as resellers or manufacturers often needs to keep products or raw materials in stock. This stock of items is called as inventory. Inventories makes up the most valuable current asset for such companies so it is important to determine and keep track of their costs. Inventory accounting is the process to do that. There are various methods for inventory accounting. Generally accepted accounting principles (GAAP) has defined such accounting methods. Four most common GAAP accounting methods are – Specific Identification Method, Weighted Average Method, FIFO Method, and LIFO Method. Choosing an appropriate method is very important because it can impact earnings and current assets of a company. A particular method can be well suited for some business types than others. Companies can choose any of these methods irrespective of how actually their inventories are sold. They must adhere to guidelines from IRS in this matter.

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