Consistency in Using Costing Methods

[elizadoolittle]

I'm currently studying basic accounting 1, and I'm on the inventory costing methods part. I had to pause at the Consistency in Using Costing Methods because it baffled me. I am struggling with some accounting concepts. I would really appreciate your help.

Consistency in Using Costing Methods

The consistency concept prescribes that a company use the same accounting methods period
after period so that financial statements are comparable across periods—the only exception
is when a change from one method to another will improve its financial reporting. The full￾disclosure principle prescribes that the notes to the statements report this type of change, its justification, and its effect on income.

The consistency concept does not require a company to use one method exclusively. For
example, it can use different methods to value different categories of inventory.

This specific part really confused me:

The consistency concept does not require a company to use one method exclusively. For
example, it can use different methods to value different categories of inventory.

What does it exactly imply? How can that happen? The GAAP says that we should be consistent with the methods we use.

 

[AGH the CPA]

You have two kinds of inventory - say one is widget 1 and one is cabinet 2.

Widget 1 rarely changes in cost. Any kind of costing method, applied consistently to widget 1 would be fine.

Cabinet 2 regularly increases in cost and is perishable so you make sure to sell the oldest first. FIFO, used consistently, would be best so that your current inventory value is closest to actual.

Two costing methods, two different categories of inventory, both acceptable under GAAP