According to the FASB Accounting Standards Codification, the major or primary objective when selecting an inventory cost flow assumption is using the one that best reflects periodic income. This comes from FASB ASC 330-10-30-9 titled "Determination of Inventory Costs."

Inventory is typically reported on the balance sheet at cost. For companies, especially ones that sell large quantities of identical products, it can be too costly to track exactly which unit of inventory is sold in each sale. Because of this, they are allowed to use an inventory cost flow assumption. Some common cost flow assumptions are first-in, first-out (FIFO), last-in, first-out (LIFO), and average-cost.