Accounting Dictionary

Moving Average

With a moving average as each new piece of information is added or subtracted, the average is recalculated.

John bought three wool coats for his store. The costs were $100, $100, $130. The average cost was $110 (100 + 100+ 130/3). John sold the first $100 coat and bought a new one for $130. Now the average cost is $120 ($100 + $130 +130/3). As each coat is sold and replaced with a new one, the average cost changes. This is a moving average.

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