Having a precise inventory valuation is critical on the grounds that, it is the reported measure of the stock or the inventory that influences the expense of goods sold, the net profit, and the overall gain on the income statement. Also, the accurate inventory valuation measures the current resources, working capital, investors’ or proprietor’s equity reported on the balance sheet.
This video explains how to configure inventory valuation in Odoo 13.
Inventory Valuation
Costing Method:
1.Standard Price: The products are valued at their standard cost defined on the product.
2.First In First Out (FIFO): The products are valued supposing those that enter the company first and will also leave first.
3.Average Cost (AVCO): The products are valued at weighted average cost.
Inventory valuation:
1.Manual: The accounting entries to value the inventory are not posted automatically when a product enters or leaves the company.
2.Automated: An accounting entry is automatically created to value the inventory when a product enters or leaves the company.
when you choose the costing method at average cost and also purchasing the product at different prices, then the product cost changes automatically. But when you sell some quantity of this it will not affect the product cost. Here the cost of the product is 80 (When I created a product named dragon fruit, cost of the product was zero, then I purchased 10kg dragon fruit having price 80 Rs per kg, the cost of the product becomes 80. When you purchase another quantity of this product with a different price, it will change the cost of the product. For example, purchasing 15kg of dragon fruit having price 90 Rs per kg.)
In FIFO, the product entering the stock will also leave first. So when I sold 5kg dragon fruits, it was taken from the stock in the purchased order. Which means products that I have purchased first will be sold first. Also, the cost of the product becomes the cost of the last moving product from the inventory.
Variation in inventory value when choosing different costing method
1.Standard price
Value = Total quantity*Standard Price
For example ,quantity=15 and standard price of the product = 80 then value= 15 * 80 = 1200
2.Average cost(AVCO)
Value = Quantity * cost of the product
(I have purchased 10 products at Rs 80 and 15 product at Rs 90 ,and sold 10 products Then, Cost of the product = 86 Quantity = 15,)
Value = 15 * 86 = 1290
3.First in First Out(FIFO)
First I have purchased 10 products at Rs 80 , then 15 product at Rs 90 ,and sold 5 products Then, Value = 5 * 80 + 15 * 90 = 1750
Account Properties:
Price Difference Account: The account will be used to value price difference between the purchase price and accounting cost.
The price difference account is only applicable to Anglo-Saxon accounting.
If the price for a product in the purchase order and price in the purchase invoice is different, then the price difference account is used to hold the difference between these two product prices.
Income Account: This account will be used when validating a customer invoice, which means it will hold the details of invoiced amount (without tax). If you process a sales order which contains different products of different categories, then you can use different accounts for different product categories. So that you can easily understand the accounting details(product category wise income) of different product categories.
Expense Account: This account will be used when validating a vendor bill, which means it will hold the details of tax excluded amount in the vendor bill. If you process a purchase order which contains different products of different categories, then you can use different accounts for different product categories. So that you can easily understand the accounting details (product category wise expense) of different product categories.
Account Stock Properties: Stock Input Account: If you are doing real-time inventory all incoming stock moves will be posted in this account unless there is a specific valuation account set on the source location.
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