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Average Cost Flow Assumption. A calculation used by companies to monitor inventory goods. The average cost flow assumption is one of a variety of cost flow assumption methods used to determine the cost of goods sold (COGS) and ending inventory. Companies use one or more methods to make certain assumptions regarding which goods have been sold and which remain in inventory.
After studying this chapter, you should be able to: 1 Identify major classifications of inventory. 2 Distinguish between perpetual and periodic inventory systems. 3 Identify the items that should be included as inventory cost. 4 Describe and compare the cost flow assumptions used in accounting for inventories. 5 Explain the significance and use of a LIFO reserve. 6 Explain the effect of LIFO liquidations. 7 Explain the dollar-value LIFO method.