Lot/Serial Costing

Track the actual cost of each specific unit or lot - required for serialized items and lot-tracked inventory.

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How Specific Identification Works

Lot/Serial Costing Concept
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Each unit/lot maintains its OWN cost

Serial Numbers:
  SN-001: 1 unit @ $1,000
  SN-002: 1 unit @ $1,050
  SN-003: 1 unit @ $980

Lot Numbers:
  LOT-A: 100 units @ $10.00
  LOT-B:  50 units @ $12.00
  LOT-C:  75 units @ $11.50

When sold, COGS = the specific cost of THAT unit/lot

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Cost Flow Diagram

Lot/Serial Costing Flow
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Purchases with Lots:

LOT-A:  100 @ $10.00 = $1,000
LOT-B:   50 @ $12.00 = $600
LOT-C:   75 @ $11.50 = $863

Sale: 80 units from LOT-A

COGS: 80 @ $10.00 = $800 (specific lot cost)

Remaining:
  LOT-A:  20 @ $10.00 = $200
  LOT-B:  50 @ $12.00 = $600
  LOT-C:  75 @ $11.50 = $863

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Serial Number Tracking

Purchase with Serial Numbers

Serial Number Receipt
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Item Receipt #IR-001
├── Item: High-Value Equipment
├── Quantity: 3
├── Serial Numbers:
│   ├── SN-001: $1,000.00
│   ├── SN-002: $1,050.00
│   └── SN-003: $980.00
└── Total: $3,030.00

Each serial number has its own cost

GL Impact (Serial Purchase)

Account	Debit	Credit	Why?
Inventory Asset	$3,030		Total of all serials
IRNB (or A/P)		$3,030	Liability for purchase

Sale with Serial Number

Serial Number Sale
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Invoice #INV-001
├── Item: High-Value Equipment
├── Serial Number: SN-002
└── Cost: $1,050.00 (specific to SN-002)

COGS is the exact cost of SN-002
Not an average, not oldest, not newest
The ACTUAL cost of that specific unit

GL Impact (Serial Sale)

Account	Debit	Credit	Why?
COGS	$1,050		Actual cost of SN-002
Inventory Asset		$1,050	Remove specific unit

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Lot Number Tracking

Purchase with Lot Numbers

Lot Number Receipt
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Item Receipt #IR-002
├── Item: Chemical Product
├── Lot Number: LOT-2024-001
├── Quantity: 500 units
├── Unit Cost: $8.50
├── Total: $4,250
└── Expiration: 2025-06-30

All units in lot have same cost ($8.50)

Sale from Specific Lot

Lot Number Sale
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Invoice #INV-002
├── Item: Chemical Product
├── Lot Number: LOT-2024-001
├── Quantity: 100 units
└── COGS: 100 @ $8.50 = $850

Must specify which lot is being sold
COGS from that lot's specific cost

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When to Use

Serial Numbers Required

Scenario	Example
High-value items	Electronics, machinery
Warranty tracking	Need to know purchase date
Recalls	Must identify specific units
Asset tracking	Fixed assets, equipment
Regulatory	Medical devices, aircraft parts

Lot Numbers Required

Scenario	Example
Expiration dates	Food, pharmaceuticals
Batch production	Manufacturing lots
Quality issues	Track back to production batch
FIFO enforcement	Ensure oldest lots sold first

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Expiration and FEFO

FEFO (First Expired, First Out)

FEFO with Lot Tracking
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Lots with Expiration:
  LOT-A: 100 units, Expires: 2024-03-15 ← Sell first
  LOT-B:  50 units, Expires: 2024-05-20
  LOT-C:  75 units, Expires: 2024-04-01

Sale of 80 units:
  System suggests LOT-A (expires soonest)
  COGS: 80 @ LOT-A cost

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Transfers with Lot/Serial

Lot Transfer
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Transfer Order:
  From: Warehouse A
  To: Warehouse B
  Item: Chemical Product
  Lot: LOT-2024-001
  Quantity: 50 units

Lot number and cost follow the inventory:
  Warehouse B receives LOT-2024-001 at same cost

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Inventory Adjustments

Adjustment with Serial Numbers

Serial Adjustment
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Adjustment (decrease):
  Item: High-Value Equipment
  Serial Number: SN-003
  Reason: Damaged

GL Entry:
  Inventory Loss    $980  Dr  ← Actual cost of SN-003
  Inventory              $980  Cr  ← Remove specific unit

Adjustment with Lot Numbers

Lot Adjustment
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Adjustment (decrease):
  Item: Chemical Product
  Lot: LOT-2024-001
  Quantity: 20 units
  Reason: Expired

GL Entry:
  Write-Off Expense  $170  Dr  ← 20 @ $8.50 lot cost
  Inventory               $170  Cr  ← Remove from lot

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Advantages and Disadvantages

Advantages

Advantage	Description
Exact cost	Know true cost of each sale
Traceability	Full audit trail
Compliance	Meet regulatory requirements
Warranty	Link to purchase date

Disadvantages

Disadvantage	Description
Complexity	More data entry
Processing	Slower transactions
Selection	Must choose specific unit/lot
Storage	More data stored

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Quick Reference

Lot vs Serial

Aspect	Lot Number	Serial Number
Quantity	Many units per lot	One unit per serial
Cost	Same for all in lot	Unique per serial
Tracking	Batch level	Unit level
Use case	Bulk goods	High-value items

GL Summary

Transaction	Cost Used
Purchase	Actual purchase cost
Sale	Specific lot/serial cost
Transfer	Original lot/serial cost
Adjustment	Specific lot/serial cost

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Next Steps

• Average Costing - Weighted average method
• FIFO/LIFO Costing - Layer-based methods
• Costing Overview - Compare all methods