Why is the Identified Cost Method considered more accurate?

The Identified Cost Method is considered more accurate primarily because it states exactly which stock is being sold. This method allows a business to track the actual cost of specific items in inventory, which means that when an item is sold, the exact cost associated with that specific item is recorded as the cost of goods sold. This precision provides a true reflection of the inventory's value on hand and the profitability of sales.

By knowing the exact cost tied to each specific item, businesses can more accurately assess their gross margins, make informed pricing decisions, and analyze their overall financial performance. This method contrasts sharply with techniques like FIFO, LIFO, or average cost methods, which rely on assumptions about cost flow and can lead to distortions in profit reporting and inventory valuation, especially in fluctuating markets. Therefore, the Identified Cost Method enhances financial reporting accuracy by linking actual costs to specific inventory items.