FIFO:

First-in-First-out or FIFO inventory accounting method values inventory (stock in hand and cost of goods
sold) on the basic assumption that inventory that is purchased/brought in first will also be
utilized/transferred out first.

A numerical example of how FIFO method works for a trading company is detailed below:
LIFO:
Last-in-First-out or LIFO inventory accounting method values inventory (stock in hand and cost of goods
sold) on the basic assumption that inventory that is purchased/brought in last will be
utilized/transferred out first.

A numerical example of how LIFO method works for the same example above is detailed below:
Average costing method:
When average costing method is used in a perpetual inventory system, an average unit cost figure is
computed each time a purchase is made. This average unit cost figure is then used to assign cost to each
unit sold until a new purchase is made. This technique is also referred to as moving average method.

Using the data from above example, we can compute the cost of goods sold and the cost of ending
inventory as follows:

Solution:

Cost of goods sold: $4,092 + $5,158 + $14722 + $2,103 = $26,075 (Total of sales

column)
Cost of ending inventory: $9,665 (Balance column)

The use of average costing method in perpetual inventory system is not common
among companies.
The main advantage of using average costing method is that it is simple and easy to
apply. Moreover, the chances of income manipulation are less under this method
than under other inventory valuation methods.