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Inventory Valuations

Costing Method

International accounting standards define several ways to compute product costs:

.. rst-class:: alternatives force-right
Standard Price
.. rst-class:: values-table
Operation Unit Cost Qty On Hand Delta Value Inventory Value
  $10 0   $0
Receive 8 Products at $10 $10 8 +8*$10 $80
Receive 4 Products at $16 $10 12 +4*$10 $120
Deliver 10 Products $10 2
-10*$10

 $20
Receive 2 Products at $9 $10 4 +2*$10 $40
Average Price
.. rst-class:: values-table
Operation Unit Cost Qty On Hand Delta Value Inventory Value
  $0 0   $0
Receive 8 Products at $10 $10 8 +8*$10 $80
Receive 4 Products at $16 $12 12 +4*$16 $144
Deliver 10 Products [1] $12 2
-10*$12

 $24
Receive 2 Products at $6 $9 4 +2*$6 $36
FIFO
.. rst-class:: values-table
Operation Unit Cost Qty On Hand Delta Value Inventory Value
  $0 0   $0
Receive 8 Products at $10 $10 8 +8*$10 $80
Receive 4 Products at $16 $12 12 +4*$16 $144
Deliver 10 Products $16 2
-8*$10
-2*$16
 $32
Receive 2 Products at $6 $11 4 +2*$6 $44
LIFO (not accepted in IFRS)
.. rst-class:: values-table
Operation Unit Cost Qty On Hand Delta Value Inventory Value
  $0 0   $0
Receive 8 Products at $10 $10 8 +8*$10 $80
Receive 4 Products at $16 $12 12 +4*$16 $144
Deliver 10 Products $10 2
-4*$16
-6*$10
 $20
Receive 2 Products at $6 $8 4 +2*$6 $32

The costing method is defined on the product form: standard, average or real price.

For "real price", the costing is further refined by the removal strategy (on the warehouse location or product category), FIFO by default.

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 post one journal entry representing the value of the physical inventory.

.. rst-class:: alternatives force-right
Supplier Invoice
.. rst-class:: values-table
Debit Credit
Assets: Inventory 50  
Assets: Deferred Tax Assets 4.68  
Liabilities: Accounts Payable   54.68
Explanation:
  • A temporary account is used to note goods to receive
  • The purchase order provides prices of goods, the actual invoice may include extra costs such as shipping
  • The company still needs to pay the vendor (traded an asset against a liability)
Configuration:
  • Inventory: defined on the product or the category of related product, field: Stock Input Account
  • Deferred Tax Assets: defined on the tax used on the purchase order line
  • Accounts Payable: defined on the supplier related to the bill
Goods Receptions
No Journal Entry
Customer Invoice
.. rst-class:: values-table
Debit Credit
Revenue: Goods   100
Liabilities: Deferred Tax Liabilities   9
Assets: Accounts Receivable 109  
Assets: Inventory   50
Expenses: Cost of Goods Sold 50  
Explanation:
  • Revenues increase by $100
  • A tax to pay at the end of the month of $9
  • The customer owns you $109
  • The inventory is decreased by $50 (shipping of the goods)
  • The cost of goods sold decreases the gross profit by $50
Configuration:
  • Revenue: defined on the product, or the product category if not on the product, field Income Account
  • Deferred Tax Liabilities: defined on the tax used on the invoice line
  • Accounts Receivable: defined on the customer (property)
  • Inventory: defined on the category of the related product (property)
  • Expenses: defined on the product, or the category of product (property)

The fiscal position used on the invoice may have a rule that replaces the Income Account or the tax defined on the product by another one.

Customer Shipping
No Journal Entry
Manufacturing Orders
No Journal Entry

At the end of the month/year, the company do a physical inventory (or just rely on the inventory in Odoo). They multiply the quantity of each product by its cost to know the inventory value of the company.

.. h:div:: force-right

   If the real value of the inventory is $4800 but the *14000 Inventory*
   account has a balance of $4200, the following journal entry is created
   manually:

   .. rst-class:: values-table

   ========================== ==== ====
   14000 Inventory            $600
   14700 Inventory Variations      $600
   ========================== ==== ====

Perpetual Inventory Valuation

In a perpetual inventory valuation, goods reception and outgoing shipments are directly posted in the accounting. The inventory valuation is always up-to-date.

.. h:div:: valuation-chart force-right

   .. placeholder
[1]products leaving the stock have no impact on the average price.