In our previous perpetual example, try to say that fast three times, the cost for someone to purchase her salt lamps stayed the same. Let me tell you though, that's not going to happen in the real world. In the real world, costs change. When we are accounting for the flow of inventory through the business, we also have to account for the flow of these costs as well. To do that, we need what are called, cost flow assumptions. The assumptions are like guidelines that we use to help us estimate, what the flow of costs through our inventory might be. There are basically three main assumptions. One, FIFO, which stands for, first in, first out. Two, LIFO, which stands for, last in, first out. Three, average cost. What assumptions are these cost flows making? In FIFO, we are making the assumption that as we make sales, we will continually sell off the oldest inventory first. First in, first out. In LIFO, we are making the opposite assumption, last in, first out. With average cost, we are making the assumption, that all the items in our inventory, are all priced at their average cost. We're going to take a look at an example, using the FIFO method. But first, let's have you listen to one of our experts discuss these assumptions in a bit more detail. There are three different methods of inventory costing or evaluations. The three that we'll talk about are FIFO, LIFO, and AVCO. We have LIFO, last in, first out, we have FIFO, first in, first out, and we have average costing. What are the different methods? Well, LIFO, last in, first out. If I receive in a 100 widgets, and then I receive in 90 widgets, last in, first out, those 90 widgets would be the ones that are costed out first. The last ones that came in are the first ones that are costed out. First in, first out, using that same scenario where you received in a 100 and then you received in 90, first in, the first 100, would be the ones that are costed out first. When we sell one of those, those costs of the first 100 would be used. Average costing, would take all 100 plus 90, a 190, average all those costs together, and that's how it would be costed. Why would a small business decide one method over another method? Well, sometimes they just find it easier. Quite honestly, most of the time they probably would just use average costing, because again, it's easier calculations. However, their industry may decide for them, which one they should be using; last in, first out, first in, first out, or average costing. It also can depend on the type of inventory they maintain. If they're maintaining perishable goods, then they may want to do FIFO, so that those items are costed out first. The most recent are left in inventory. There can also be some major fluctuations in the value of the inventory. They might buy those first 100 at a dollar apiece, but then the last 90, they pay $10 apiece. There's a great variation there. We want to make sure that we're accounting for those properly. Again, it depends on the industry and several different factors. It can get complicated, depending on the client and their industry and their needs, but those are the three different costing methods, and how they might start deciding which one of those to use. One last note about costing methods. If a client decides to change costing methods of their inventory, that is definitely something that has to be considered, because there are forms that have to be filed with the government to alert of that change, because of tax implication changes.