How to Calculate Inventory Aging

Calculate aged inventory.

Inventory can be one of the most important assets of an organization. Depending on the type of company and nature of the inventory, the company may have different methods for accounting for inventory aging. There are two major ways to value inventory: FIFO (first in, first out) and LIFO (last in, first out). In periods of rising prices, FIFO results in higher ending inventory values and vice versa for LIFO.

Instructions

1. Determine the prices you paid for the inventory, starting with the most recent inventory purchases first.

2. Calculate the value of inventory under the FIFO method. In this method, the first inventory into the organization is the first inventory out of the organization. In periods of rising interest rates, this means that the inventory that is not used and still on the books is more highly valued than the inventory sold.

3. Calculate the value of inventory under the LIFO method. In this method, the last inventory in is the first inventory out. In periods of rising interest rates, this means the inventory not used and still on the books is valued less than the inventory that is sold.

References

• Financial Education: Inventory Accounting Methods: LIFO, FIFO, Weighted Average and Specific Identification