 Hello, in this lecture we will define specific identification. According to fundamental accounting principles, while 22nd edition, the definition of specific identification is method for assigning cost to inventory when the purchase cost of each item in inventory is identified and used to compute cost of goods sold and or inventory. Specific identification being an inventory method. We are tracking the inventory. We are going to track the inventory by assigning the exact specific cost to an exact specific inventory. For example, if we sell forklifts here, we may say that the total inventory for all the forklifts is $74,200. If we sell a forklift, then the question is what is the cost of that forklift? Separate from the sales price, that's different. We are talking about the cost, how much should the inventory go down by and the related cost of goods sold be recorded by. You might be saying, well, let's take the total forklifts and divide the total cost divided by a number of forklifts. So if there's $74,200 total cost on the balance sheet and we had five of them before the sale and we divide it out, maybe we say it's $14,840. But that's just an average because all five of them may not have cost that same amount. If we use specific identification, we would say, hey, here's the five forklifts that make up that $74,200. Maybe we give these identification numbers and then we assign the exact cost that we paid for each particular forklift. In that way, we can then see which one we sold, see the identification number and see the actual price that we purchased that particular forklift for. So that would be specific identification. If we used specific identification, we can do our journal entry, recording the sales half of the journal entry, debuting accounts receivable, crediting sales, this $16,000 having nothing to do with our cost tracking that being the sales price, then we would reduce the inventory by the $15,000 cost and record the related cost of goods sold, the expense of the $15,000 according to that specific identification. On the balance sheet side of things, we would say, here's the $74,200 assets on the balance sheet, reducing it by that $15,000 forklift that we sold brings it to $59,200. Balance sheet then would have that $59,200 in inventory left over after that sale. You might be thinking we should always be using specific identification. That makes perfect sense. It does in case of large items where tracking it will be worth our time. However, we sell something like coffee mugs. If we have a specific number for each coffee mug and we want to know exactly what that particular mug cost, that would not be worth our time most likely, most likely for something that is small and totally the same such as a coffee mug. We're going to use a cost flow assumption such as first and first out, last and first out, average method.