Average-Cost Method
Accounting glossary · Understand, connect, apply
The average-cost method assigns inventory costs using a weighted average of the costs of similar units available for sale. It can be applied periodically or as a moving average in a perpetual system.
Example
Ten units costing $5 and ten costing $7 have an average cost of $6 per unit.
Remember the difference
Use units as weights; simply averaging price quotations can give the wrong result when quantities differ.
Updated 3 November 2026. Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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