Average Cost Method

  

We're going to tell you the definition of this one and you're going to complain "well, that's kind of obvious." Maybe. But, would you really prefer if it was confusing? Would you prefer if it was called "Mean Inventory Outlay Accounting Methodical Process (MIOAMP)." We thought not.

Anyway, the average cost method represents a way to record the value of inventory on a balance sheet. As the name implies, you divide the total cost of the inventory by the amount you have in stock. So each piece of inventory is recorded at the average price of all the inventory (this way you don't have to track specific costs for individual inventory pieces).

You own a company that installs entertainment systems. You keep a bunch of TVs in stock for rush jobs. However, sometimes you get a deal on the TVs. Sometimes you don't.

So you have five TVs in stock that cost you $500 each, you have three in stock that cost you $600, and two from way back before you knew how to negotiate that cost you $1,000 each. The total cost of all the TVs is $6,300, and there are 10 TVs in stock. So average cost of the TVs is $630 each. When one of them is sold, you subtract $630 from the inventory on the balance sheet, regardless of which specific TV was installed and what its original cost was.

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Finance: What is Tax Basis?8 Views

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Finance allah shmoop What is tax basis Well your basis

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owe when the tax man coming you bought a thousand

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you pay about thirty percent tax on your gains Well

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you paid twelve grand to buy the stock and after

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the sale you took in thirty grand when you sold

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it for a gain of eighteen thousand dollars Your tax

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thirty percent tax on the eighteen grand of gain or

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fifty four hundred dollars to net from the sale of

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thirty thousand dollars worth of stock How much Yeah twenty

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Four thousand six hundred dollars He fancy math Had you

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just gotten those shares free I'ii they were gifted to

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you and you had no tax basis or a tax

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basis of zero dollars a share Well then your gain

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would have been from zero to thirty grand or a

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gain of thirty thousand dollars to then be taxed at

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