Flow Of Costs


DEFINITION of 'Flow Of Costs'

Refers to the manner in which costs move through a firm. Typically, the flow of costs is relevant to a manufacturing environment where accountants must quantify what costs are in raw materials, work in process, finished goods inventory and cost of goods sold. Flow of costs does not only apply to inventory, but also to factors in other processes to which a cost is attached such as labor and overhead.


There are several methods for accounting for the flow of costs. These include LIFO (last in, first out), FIFO (first in, first out), specific identification and weighted-average cost. U.S. GAAP financial reporting standards require that companies that use the LIFO method report the difference between that method and FIFO in a line item called LIFO reserve. This allows analysts to readily compare firms using different cost flow assumptions.

  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  2. Cost Of Goods Sold - COGS

    Cost of goods sold (COGS) are the direct costs attributable to ...
  3. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
  4. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  5. Inventory

    The raw materials, work-in-process goods and completely finished ...
  6. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
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