A method of keeping track of all items in an inventory. Specific identification inventory valuation is often used for larger items such as furniture or vehicles, but it is used to identify specific securities as well. This method of identification allows investors to reduce or offset capital gains by picking a specific lot of securities to be used as basis for a sale.

For example, suppose that Jane owns 1,000 shares of ABC company, a volatile small cap manufacturer. She bought 400 shares at $40 per share, 300 shares at $60 per share and the remaining 300 shares at $20 per share. Jane then sells 300 shares at $70 per share. Using the method described above, Jane can match the shares she sold with the 300 shares she purchased at $60 per share, because the cost of specific securities is easy to identify.