No matter which inventory method you choose, AccountRight calculates your inventory's value by using the Average inventoryWhen 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. Image Added For more information on this process, see Creating items. 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 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 item÷Total Quantity of items. Let's take a look at an example of how this would work in everyday business. UI Text Box |
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| Example 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 were 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)
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It's important to note that this example is of the average cost method in a perpetual inventory system, which AccountRight is setup to run. In this system, the average cost is calculated before each transaction. In a periodical inventory system, the average is recorded after a physical stocktake, the multiplied with the number of items sold and number of units in ending inventory to arrive at cost of goods sold (COGS) and value of ending inventory respectively. |