7.7.3. How to do an inventory valuation? (Anglo-Saxon Accounting)

Every year your inventory valuation has to be recorded in your balance sheet. This implies two main choices:

  • the way you compute the cost of your stored items (Standard vs. Average vs. Real Price);
  • the way you record the inventory value into your books (periodic vs. Perpetual).

→ Costing Method

KIU allows any method. The default one is Standard Price. To change it, check Use a ‘Fixed’, ‘Real’ or ‘Average’ price costing method in Purchase settings. Then set the costing method from products’ internal categories. Categories show up in the Inventory tab of the product form.

Whatever the method is, KIU provides a full inventory valuation in Inventory ‣ Reports ‣ Inventory Valuation (i.e. current quantity in stock * cost price).

→ Periodic Inventory Valuation

In a periodic inventory valuation, goods reception and outgoing shipments have no direct impact in the accounting. At the end of the month or year, the accountant posts one journal entry representing the value of the physical inventory.

At the end of the month/year, your company does a physical inventory or just relies on the inventory in KIU to value the stock into your books.

Then you need to break down the purchase balance into both the inventory and the cost of goods sold using the following formula:

Cost of goods sold (COGS) = Starting inventory value + Purchases – Closing inventory value.

→ Perpetual Inventory Valuation

In a perpetual inventory valuation, goods receptions and outgoing shipments are posted in your books in real time. The books are therefore always up-to-date. This mode is dedicated to expert accountants and advanced users only. As opposed to periodic valuation, it requires some extra configuration & testing.

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