When a business uses the perpetual inventory method, they're continually tracking the monetary and physical movement of their stock; so, their inventory balance will always be up-to-date and have less reliance on physical inventory counts.
If you want to use the perpetual inventory method in your AccountRight, you need to make sure you check I Inventory This Item when creating an item.
For more information on creating items, see the AccountRight help (Australia | New Zealand).
When using a perpetual inventory in AccountRight, your inventory's monetary value is tracked using the average costing method.
Unlike other valuing methods, such as First in First Out (FIFO), the average costing method values your inventory by calculating its weighted average value, using the formula: Average Cost=Total Value of the item÷Total Quantity of items. Let's take a look at an example of how this would work in everyday business.
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Let's say you purchase 10 wine glasses for $10.00 each. This will result in an average cost of $10.00 per item.
The following day, 10 more wine glasses are purchased, this time for $12.00 each. Your inventory looks like this:
- Total Quantity of win wine glasses: 20
- Total Value of wine glasses: $220.00
- Average Cost: $11.00 ($220.00÷20)
From this example, you'll notice your average cost rose by $1.00 after purchasing the second lot of glasses. This number will be automatically calculated and updated after each sale and purchase.