Why is the Identified Cost Method considered more accurate?

The Identified Cost Method is considered more accurate because it specifically states exactly which stock is being sold at any given time. This method requires tracking the actual cost of each individual item in inventory, allowing businesses to match the specific cost of the inventory items that were actually sold to their corresponding revenues. This precise matching results in a more accurate representation of the cost of goods sold in the financial statements, providing better insight into profit margins and inventory costs.

By identifying the exact cost associated with each specific item sold, businesses avoid the inaccuracies that can arise from averaging costs or making estimations. This is particularly important in industries where certain items have significantly varying costs or where inventory items are unique or custom-made.

The other methods, such as average costing or simplified inventory management methods, do not provide this level of detail regarding specific transactions. Consequently, they can lead to over- or under-representation of profit margins, affecting financial analysis and decision-making. Therefore, the clarity and precision provided by the Identified Cost Method enhance financial accuracy and reporting.