How to Take Inventory Using the Specific Identification Method

One of the most challenging components of running a business is keeping track of inventory. It is so challenging that some businesses often outsource inventory to fulfillment centers. Still, it may be hard to get away from inventory for others. In theses cases, an inventory method must be chosen to value the inventory correctly. Here's how to value inventory with the Specific Identification Method.

Instructions

Difficulty: Moderate

1. Determine the size of the inventory. The specific identification method is most useful with a small inventory of high-dollar items. An art gallery, for example, would be a great example where this method of inventory valuation is appropriate. Remember that this method will need to be consistent from one year to the next. If inventory is expected to increase drastically, another method may be more appropriate.
2. Develop a marking system for all items. This may be in the form of a bar code system or a manual handwritten system. Because there is not a high volume of inventory, there are a wide variety of choices for marking inventory.
3. Keep track of items sold. Once an item is sold, use the marking system to correlate the specific item to a sale, then calculate total sales. The newly sold items increase the total purchases for a given month.
4. Deduct the cost of the specific item from the total ending inventory to get a new inventory number. Continue this method as items are sold so that inventory numbers will exactly reflect the value of the items that are on hand.