Average Cost Flow Assumption

AAA

DEFINITION of '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.


Also called "weighted average cost flow assumption".

INVESTOPEDIA EXPLAINS 'Average Cost Flow Assumption'

The average cost flow assumption assumes that all goods of a certain type are interchangeable and only differ in purchase price. The purchase price differentials are attributed to external factors including inflation, supply or demand. Under average cost flow assumption, all of the costs are added together, then divided by the total number of units that were purchased. The number of units sold can be multiplied by the average price per unit to establish the cost of goods sold and the ending inventory.

RELATED TERMS
  1. Accrual Rate

    The rate of interest that is added to the principal of a financial ...
  2. Accrued Expense

    An accounting expense recognized in the books before it is paid ...
  3. Accrual Accounting

    An accounting method that measures the performance and position ...
  4. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash ...
  5. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
  6. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...
Related Articles
  1. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  2. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  3. Fundamental Analysis

    Dynamic Current Ratio: What It Is And How To Use It

    Learn why this ratio may be a good alternative to the current, cash and quick ratios.
  4. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  5. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  6. Fundamental Analysis

    What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital.
  7. Entrepreneurship

    How do ridesharing companies like Uber make money?

    Discover the services a transportation company such as Uber provides and how the premiere ridesharing company operates and makes money.
  8. Fundamental Analysis

    Is depreciation only used for tangible assets?

    Learn if tangible assets can be depreciated, as well as what other assets are eligible for depreciation so you can account for them accurately.
  9. Fundamental Analysis

    What does a high weighted average cost of capital (WACC) signify?

    Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors.
  10. Fundamental Analysis

    How do intangible assets appear on a balance sheet?

    Understand how various types of intangible assets are handled in a company's accounting and which of them you can find on a company's balance sheet.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center