Hey guys! Welcome back to my Medium! In this article, we are going to learn about inventory valuation and the scenarios. I will embed the scenario video in this article as usual. Before we do the scenario, I want you guys to know what methods are in inventory valuation, which may be helpful for us later(maybe haha). I’ve written and summarized it from several sources so that you can quickly learn it through this Medium. I hope this article would make you easier to understand and implement the inventory valuation method in Odoo. So let’s get started!
Basically, inventory valuation is a way of accounting practice that followed by companies to knowing the value of unsold inventory stock while making up the financial reports. This value can help us define our inventory turnover ratio, which will also help us make purchasing decisions.
There are three methods in inventory valuation, those are:
The cost of goods is estimated directly from material cost, labor cost, and some additional production costs at the end of a certain period. This price is entered into the Product Form. This method is used by concerns that follow the standard costing technique of accounting.
The Average Value of Cost (AVCO). As the name implied, AVCO determines the latest inventory stocks and the cost of goods sold based on the average cost of the units available for sale. To clarify, the cost will be recalculated based on the paid purchased order and the quantity of goods purchased (for every item that was purchased or received). The average cost does not change when the product leaves the warehouse.
First In, First Out (FIFO), is a valuation method in which assets that are produced or acquired are first sold, used, or disposed of. Inventory value is calculated from the cost of the stored goods. The goods cost will be set to the price of the last item sent. The cost price is used to assess items that are not received from the purchase order.
Okay, so now let’s go to the basic inventory valuation scenario session! You can start it by watching this video:
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