Accounting policy
An accounting policy is the specific method a company chooses to apply an accounting rule, such as FIFO versus weighted average for inventory, disclosed in the notes and changed only retrospectively.
FrameworkIAS 8
See it move
A company buys 100 units at €10 and 100 units at €14, then sells 150. Under FIFO, cost of sales is €1,700 (100 × €10 plus 50 × €14), leaving €700 of inventory. Under weighted average, the €12 average cost gives cost of sales of €1,800, leaving €600. Identical purchases and sales, a €100 difference in profit purely from the policy chosen.
Check yourself
A retailer buys 300 units of a product in two batches: 200 units at €8 each, then 100 units at €11 each. It sells 250 units during the period. Using a first-in-first-out cost policy, what is the cost of goods sold, and would this figure differ under a weighted-average cost policy applied to the same purchases and sales?