Sunday, November 13
FIFO costing method and Effect of additional expenses on the stock value
At the conclusion of this topic you will be able to describe the standard costing method, describe the FIFO costing method, describe the effect of additional expenses on the stock value, update the costing methods, and use the material revaluation functionality.
The standard price costing method: SAP business one allows you to work with a standard price method for calculating your stock value. A standard or fixed price should be entered in each item, thus influencing every stock posting as described in the next few lines. A stock receipt entered with the different price than the standard price set for the item will debit the stock account according to the standard price. In addition the difference between the standard price and the actual receipt price will be recorded in a variance or a price difference account. For example when the receipt price is higher, than the standard price then the following journal entry will be created. As you will be able to see, the vendor or the allocation account is debited, the stock account is debited with the value according to the standard price and the variance account is debited with the difference between the actual price of the document and of the standard price defined for the item. Stock releases will be recorded according to the standard price only.
Setting standard prices: when you work with a single price in all your warehouses, you should set the standard price via the item master data window. Under the inventory tab there , in the field cost price, type the standard price of your item . when you click on the tab key, the system message- update price for all warehouses is displayed. Click yes to display this price to all your warehouses. It is possible to change the cost prices of each one of the items in the warehouses manually before inventory postings have been created. After these were created you can use the material revaluation window which will be explained later. You can see that in the field costing method, the option standard is selected. Lets see few examples of journal entries created when working with the continuous stock with the standard costing method. Lets first start with the goods receipts PO. Our preliminary assumptions are that the business partners are sales tax exempted and that the item has sufficient stock quantities and is managed by the standard costing methods. You should know that no journal entry would be created by a document containing items with no standard price. This means that if you add a document with an item which does not have the cost price here, no journal entry for the inventory value will be created. The following example will tell a case where the items price as recorded in the goods receipts PO, that is from the standard from as set in the item master data window. Lets type one hundred and fifty in the goods receipt PO. We conceive that the item master data , the cost price of the data in item number one is one hundred. Lets add the document. Lets browse back and take a look at the journal entry. You can see that the allocation account is credited by one hundred and fifty dollars which is the items price in the goods receipts PO. The stock account Is debited by one hundred dollars which is the items standard price. And the variance account is debited by fifty dollars which is the difference between the price in the documents and the standard price of the item in the warehouse. Remember that the allocation account functions as a temporary alternative for the vendors account which will be cleared only after you create a corresponding A/P invoice. Note again that whenever the variance account is recorded in the journal entry, you can conclude the items quantity in stock is positive. If the quantity in stock is zero or negative, the price difference G/L account will be reflected in the difference between the price in the document and the standard price recorded for the document. In this case the variance account will not appear here and instead the price difference account would be recorded. If a document changes the quantity of stock from positive to negative the price difference account will be recorded in the journal entry. If a document changes quantity in stock from negative to positive, then the variance account will be recorded in the journal entry. Lets base an A/P invoice on the goods receipts PO we have just added. When basing an invoice in the goods receipt PO, the allocation account is debited counter to the vendor account which is credited. Lets add the A/P invoice and see the journal entry. You can see that the vendor is credited by one hundred and fifty dollars and the allocation account is debited by one hundred and fifty dollars. Note again that the allocation account functions as a clearing account, it is debited by the amount with which it was credited in the goods received PO. Lets see some stock release documents. Lets open an A/R invoice an see the journal entry created by a standard price item. Again lets set the price here to one hundred and fifty dollars. Remember that the release document do not affect the stock valuation price. This A/R invoice is not based on any document. Let add the document, browse back and take a look at the linked journal entry. You can see that this journal entry includes the deliveries, the inventory transaction and the invoices of accounting transaction. You can see that the value of the inventory transactions is calculated by the item standard price and the amount in the accounting transactions is calculated by the price recorded in the A/R invoice. Lets see an example of an inventory document. Lets take for an example a goods receipt. Select the item again here and you can see that the price is one hundred and fifty. In this example we display a case where the items price here varies from the item standard price set. You can see that the items standard price is one hundred, and the price actually recorded is one hundred and fifty. Lets add this document. Browse back and you can see that the increase account is credited by one hundred and fifty dollars, the stock account is debited by one hundred dollars which is the standard price of the item and the variance account is debited by a difference, between the price in the document (one hundred and fifty ) and the standard price of the document which is hundred dollars. In general if the price in the stock receipt documents is lower than the standard price of the item then the variance account will be credited.
Working with negative stock in the standard method. In a situation where the item quantity in the stock is negative or will be negative after the transaction is created, in most cases the price difference account will be recorded in the journal entry instead of the variance account.
The FIFO costing method: this option calculates the stock value by the FIFO method( first in first out) . each inventory receipt transaction creates a layer of quantities, costs( purchase price) and dates. Each inventory release transaction uses quantities and their corresponding costs from the first open layer or layers. A layer closes when its entire quantity is released. When several inventory receipt transactions are recorded on the same date, SAP business one identifies the first layer, second layer and so on according to their entrance time. Note: no cost price will be displayed in the item master data.
Layers of quantities and prices: lets see how the FIFO costing method works in SAP business one. First and inventory receipt transaction is recorded. It might be a purchasing document or another stock receipt document in this example the inventory receipt transaction was recorded with a quantity of two at a price of one hundred and on the date January first 2004. This inventory receipt transaction created the first layer which is layer number one. On February second an additional inventory receipt transaction was recorded for this item. However, this time although the quantity was two, and the price was two hundred. This created the second layer number two. On march third, one of your customers purchased this item. An inventory release transaction was recorded. Three pieces of this item were purchased. As a result three units of this item were releases from the warehouse. As a result layer number one was closed since a quantity of two was released from this layer and layer number two remained open with a quantity of one at a price of two hundred since only one of the two pieces was released.
Lets see some example for journal entries created by the FIFO costing method. First you can see from the items master data that the selected costing method is FIFO. Notice that there is no cost price field here. This is because the FIFO prices are calculated dynamically according to the receipt and the stock postings. Lets start with the goods receipt PO. Again our prerequisites are that the business partner is tax exempted and that the item is managed by the FIFO costing method. Lets receive two items. Lets receive a quantity of two at a price of one hundred to warehouse number one. Lets add this document and browse back to see the journal entry. You could see that it’s a regular inventory valuation transaction. Now lets add another goods receipt PO. For this tome the quantity will be two and the price will be two hundred to warehouse number one. You can see that the journal entry is normal. Now lets go to the delivery which is the release document. Select the FIFO item and select a quantity of three. Lets add the document, browse back and take a look at the journal entry. You can see that the amount is four hundred. In the delivery there is a quantity of three and a price of one hundred. Remember that the prices in release document do not count for the calculation of the journal entries. So what they did for the calculation for the debited and credited amounts? If you remember, the first layer contains two items with a price of one hundred and the second layer contains two items with a price of two hundred. When the delivery document released a quantity of three, two items which were in the first layer were multiplied by one hundred and this layer was closed. The third item was calculated with a price of two hundred. This account two four hundred( 2 multiplied by one hundred plus one multiplied by two hundred. Lets demonstrate the FIFO transactions using a query we have defined earlier. This query uses a table which represents the WH journal. Here you can see the query sentence and you can see the items transactions. Under the column transaction type you can see the code of the documents. Number 20 represents the goods receipt PO and the number 15 represents a delivery document. In the first record you can see a transaction created by the goods received PO , with a receipt quantity of two at a price of one hundred. In the second record you can see a second transaction created by the goods receipt PO with a received quantity of two at a price of two hundred dollars each. Now lets see the release transactions. If you remember, earlier we had created one delivery document releasing a quantity of three. However you can see that in this query two separate transactions were created. The first transaction record an issued quantity of two at a price of one hundred. This transaction closes the layer created with the closed good receipt PO. The second record shows an issued quantity of one at a price of two hundred. Since the first layer was closed this quantity and price are now taken from the second goods receipt PO transaction and therefore the price changes accordingly.
Working with negative stock in FIFO method: when the stock is negative or zero after addition of a new FIFO layer , all FIFO layers of this item will be closed. The price of the released items will be taken from the last purchase price. When the stock becomes positive as a result of the addition of a new receipt transaction, two FIFO layers will be created for this item. The first layer will record the quantity required in order to bring the stock balance to zero. This layer will be closed. The second layer will record the remaining quantity of the receipt transaction and will function as the first open layer for future FIFO transactions.
Example: an items stock balance is (-4). A quantity of ten was recorded as a stock receipt transaction . results: the first layer for quantity of four, required to bring the stock balance to zero is closed. The second layer for the remaining quantity of six will function as the first open layer of this item.
Additional expenses: additional expenses maybe insurance, shipment or other fees which apply to your goods. If you are working with the continuous stock system, you can add the value of the additional expenses recorded in the row level of your purchasing documents to the inventory value of your goods. Additional expenses may also update the cost price of the items. Further information on additional expenses is provided later on. The influence of additional expenses on the inventory value will be explained further according to the moving average method.
If you are working on the additional expenses on a continuous stock system, you first need to verify that you have defined a certain G/L account under administration ,then definitions, then financials, then G/L accounts determination. Under the purchase tab page, at the bottom of this window, under the title expense account, you can see the variance account field. If you choose the affect the stock with additional expenses you need to specify a variance clearance account to clear journal entries created by the A/P journal memos based on A/P invoices or by the goods return based on the goods receipt POs withy which the additional expenses amount is changed. After you define this G/L account you can add sales and purchasing documents which include additional expenses. Lets see an example as to how the additional expenses affect the valuation when they are recorded in purchasing documents. Lets take for example a goods receipt PO. Lets select an item which is managed by a moving average costing method. The cost price of this item is one hundred in warehouse number one. Lets receive this item with a quantity of one. Select additional expenses. Lets say insurance in the amount of ten dollars. Under the column expenses one stock, you can choose either yes or no. if you choose yes, the additional expenses amount will influence the stock valuation. Lets add this document and browse back to see the journal entry. You can see that the allocation account is credited by one hundred dollars, which is the moving average price of the item. The additional expenses clearing account is credited by ten dollars which is the additional expenses amount and the stock account is debited by the total amount of these two G/L accounts. Note that the additional expenses amount recorded in the journal entry is the global amount for the additional expenses for the entire quantity. The expenses clearing Is the clearing account recorded for the stock account. Now lets place an A/P invoice in this goods receipts PO. You can see that the row that we have recorded in the goods receipt PO is now copied to the A/P invoice , including then additional expenses amount. Lets add the document, browse back and take a look at the journal entry. You can see that the vendor is credited by one hundred and ten dollars which is the total amount of document. The additional expenses clearing account is debited by ten dollars. This is to clear the amount credited in the goods receipt PO. The allocation account is credited by one hundred dollars which is the moving average price for the item. This is to clear the amount debited in the goods receipt PO. Now lets see an example of an independent A/P invoice. Lets select the vendor again, the item and type the date. Now again lets select an additional expense and type an amount. Select yes to affect the stock valuation with the amount of additional expenses lets select add. Browse back and take a look at the journal entry. Note that the expenses clearing account is not recorded in this journal entry since the stock account reflects the item price including additional expenses. As mentioned earlier, the expenses clearing is a clearing account and this journal entry records the final values affecting the inventory valuation. Therefore no intermediate accounts are recorded here. Only the vendor account and the stock account are seen.
Update costing method: starting in version 2004, it is possible to change the costing method of an item, however in case it is not linked to any open documents and its on hand stock is zero. Use the update stock valuation method report to update the costing method of your items.
Lets take a look at the update stock method window. Go to inventory. Click on item management and select update stock method. Approve the selection for the window that opens and open the update stock valuation report. Use this window to update the costing method of your items. Note that only items with a zero on hand stock and have no open documents are displayed ion this window. We can take a look at any item and see that it has no on hand stock. There is no quantity in this field. You can also see that the costing method is set to standard. In the current method column you can see the costing method of the items. In the new method column you can select the relevant costing method which you would like to use from now on for this item. In the approved column, check the boxes of all the items you would like to update. Lets select one of the items with a costing method of moving average method. When you click on update the window closes and you can see that the current method is changed from standard to moving average method.
Material revaluation: starting in 2004, It is possible to change the costing price for your items manually. This window allows you to revaluate material values by changing the moving average or the standard price of an item and calculating the total value of all the stock. There are two options for revaluating the stock: 1.the item price changes when the whole stock is affected.
2. the inventory value( credit or debit) changes with the reference to a certain quantity of the item.
Lets take a look at the material revaluation functionality. Go to inventory, then inventory transaction, then click on material revaluation. In this window you have two methods of revaluation- price change and inventory debit / credit. First lets see the price change revaluation type. In the table, select the items. Let this items current price be one hundred and two point five dollars. Lets say this resulted from the stick and that you would like the price to be one hundred dollars. Simply type new price in this column. Note that the increase and decrease G/L accounts are those defined in the selected warehouse. Click on add to select and perform the action. Go back to browse the linked journal entry. You can see that the corresponding journal entry created for stock valuation involves the stock account of warehouse number one and the decrease account specified in the corresponding field in the material evaluation window. The decrease G/L account is recorded on the journal entry due to the fact that we reduce the price from one hundred and two point five to one hundred. Lets take a look at the item .you can see now that the item whose price was changed from one hundred and two point five to one hundred. Lets take a look at the second method. Inventory debit / credit. This method allows you to record a change in the inventory value which relates to a certain quantity of the item. For example if you know that a price mistake was made in a certain receipt document, yet the inventory value of the entire quantity will be updated regardless of the quantity specified in here. Again lets select this item and now type the quantity. Note that the quantity is informative only . type a positive amount to debit the stock account and a negative amount to credit it. Note that the negative and positive amounts are dependant on the definitions made in the field displayed credit balance with a negative sign. Click on add. Lets browse back to see the journal entry. You can see that one hundred and ten dollars are recorded in the journal entry. Lets take a look at the item and you can see that the cost price was updated accordingly.
You will now be able to describe the standard costing method, describe the FIFO costing method, describe the effect of additional expenses on the stock value, update the costing methods, and use the material revaluation functionality.
The standard price costing method: SAP business one allows you to work with a standard price method for calculating your stock value. A standard or fixed price should be entered in each item, thus influencing every stock posting as described in the next few lines. A stock receipt entered with the different price than the standard price set for the item will debit the stock account according to the standard price. In addition the difference between the standard price and the actual receipt price will be recorded in a variance or a price difference account. For example when the receipt price is higher, than the standard price then the following journal entry will be created. As you will be able to see, the vendor or the allocation account is debited, the stock account is debited with the value according to the standard price and the variance account is debited with the difference between the actual price of the document and of the standard price defined for the item. Stock releases will be recorded according to the standard price only.
Setting standard prices: when you work with a single price in all your warehouses, you should set the standard price via the item master data window. Under the inventory tab there , in the field cost price, type the standard price of your item . when you click on the tab key, the system message- update price for all warehouses is displayed. Click yes to display this price to all your warehouses. It is possible to change the cost prices of each one of the items in the warehouses manually before inventory postings have been created. After these were created you can use the material revaluation window which will be explained later. You can see that in the field costing method, the option standard is selected. Lets see few examples of journal entries created when working with the continuous stock with the standard costing method. Lets first start with the goods receipts PO. Our preliminary assumptions are that the business partners are sales tax exempted and that the item has sufficient stock quantities and is managed by the standard costing methods. You should know that no journal entry would be created by a document containing items with no standard price. This means that if you add a document with an item which does not have the cost price here, no journal entry for the inventory value will be created. The following example will tell a case where the items price as recorded in the goods receipts PO, that is from the standard from as set in the item master data window. Lets type one hundred and fifty in the goods receipt PO. We conceive that the item master data , the cost price of the data in item number one is one hundred. Lets add the document. Lets browse back and take a look at the journal entry. You can see that the allocation account is credited by one hundred and fifty dollars which is the items price in the goods receipts PO. The stock account Is debited by one hundred dollars which is the items standard price. And the variance account is debited by fifty dollars which is the difference between the price in the documents and the standard price of the item in the warehouse. Remember that the allocation account functions as a temporary alternative for the vendors account which will be cleared only after you create a corresponding A/P invoice. Note again that whenever the variance account is recorded in the journal entry, you can conclude the items quantity in stock is positive. If the quantity in stock is zero or negative, the price difference G/L account will be reflected in the difference between the price in the document and the standard price recorded for the document. In this case the variance account will not appear here and instead the price difference account would be recorded. If a document changes the quantity of stock from positive to negative the price difference account will be recorded in the journal entry. If a document changes quantity in stock from negative to positive, then the variance account will be recorded in the journal entry. Lets base an A/P invoice on the goods receipts PO we have just added. When basing an invoice in the goods receipt PO, the allocation account is debited counter to the vendor account which is credited. Lets add the A/P invoice and see the journal entry. You can see that the vendor is credited by one hundred and fifty dollars and the allocation account is debited by one hundred and fifty dollars. Note again that the allocation account functions as a clearing account, it is debited by the amount with which it was credited in the goods received PO. Lets see some stock release documents. Lets open an A/R invoice an see the journal entry created by a standard price item. Again lets set the price here to one hundred and fifty dollars. Remember that the release document do not affect the stock valuation price. This A/R invoice is not based on any document. Let add the document, browse back and take a look at the linked journal entry. You can see that this journal entry includes the deliveries, the inventory transaction and the invoices of accounting transaction. You can see that the value of the inventory transactions is calculated by the item standard price and the amount in the accounting transactions is calculated by the price recorded in the A/R invoice. Lets see an example of an inventory document. Lets take for an example a goods receipt. Select the item again here and you can see that the price is one hundred and fifty. In this example we display a case where the items price here varies from the item standard price set. You can see that the items standard price is one hundred, and the price actually recorded is one hundred and fifty. Lets add this document. Browse back and you can see that the increase account is credited by one hundred and fifty dollars, the stock account is debited by one hundred dollars which is the standard price of the item and the variance account is debited by a difference, between the price in the document (one hundred and fifty ) and the standard price of the document which is hundred dollars. In general if the price in the stock receipt documents is lower than the standard price of the item then the variance account will be credited.
Working with negative stock in the standard method. In a situation where the item quantity in the stock is negative or will be negative after the transaction is created, in most cases the price difference account will be recorded in the journal entry instead of the variance account.
The FIFO costing method: this option calculates the stock value by the FIFO method( first in first out) . each inventory receipt transaction creates a layer of quantities, costs( purchase price) and dates. Each inventory release transaction uses quantities and their corresponding costs from the first open layer or layers. A layer closes when its entire quantity is released. When several inventory receipt transactions are recorded on the same date, SAP business one identifies the first layer, second layer and so on according to their entrance time. Note: no cost price will be displayed in the item master data.
Layers of quantities and prices: lets see how the FIFO costing method works in SAP business one. First and inventory receipt transaction is recorded. It might be a purchasing document or another stock receipt document in this example the inventory receipt transaction was recorded with a quantity of two at a price of one hundred and on the date January first 2004. This inventory receipt transaction created the first layer which is layer number one. On February second an additional inventory receipt transaction was recorded for this item. However, this time although the quantity was two, and the price was two hundred. This created the second layer number two. On march third, one of your customers purchased this item. An inventory release transaction was recorded. Three pieces of this item were purchased. As a result three units of this item were releases from the warehouse. As a result layer number one was closed since a quantity of two was released from this layer and layer number two remained open with a quantity of one at a price of two hundred since only one of the two pieces was released.
Lets see some example for journal entries created by the FIFO costing method. First you can see from the items master data that the selected costing method is FIFO. Notice that there is no cost price field here. This is because the FIFO prices are calculated dynamically according to the receipt and the stock postings. Lets start with the goods receipt PO. Again our prerequisites are that the business partner is tax exempted and that the item is managed by the FIFO costing method. Lets receive two items. Lets receive a quantity of two at a price of one hundred to warehouse number one. Lets add this document and browse back to see the journal entry. You could see that it’s a regular inventory valuation transaction. Now lets add another goods receipt PO. For this tome the quantity will be two and the price will be two hundred to warehouse number one. You can see that the journal entry is normal. Now lets go to the delivery which is the release document. Select the FIFO item and select a quantity of three. Lets add the document, browse back and take a look at the journal entry. You can see that the amount is four hundred. In the delivery there is a quantity of three and a price of one hundred. Remember that the prices in release document do not count for the calculation of the journal entries. So what they did for the calculation for the debited and credited amounts? If you remember, the first layer contains two items with a price of one hundred and the second layer contains two items with a price of two hundred. When the delivery document released a quantity of three, two items which were in the first layer were multiplied by one hundred and this layer was closed. The third item was calculated with a price of two hundred. This account two four hundred( 2 multiplied by one hundred plus one multiplied by two hundred. Lets demonstrate the FIFO transactions using a query we have defined earlier. This query uses a table which represents the WH journal. Here you can see the query sentence and you can see the items transactions. Under the column transaction type you can see the code of the documents. Number 20 represents the goods receipt PO and the number 15 represents a delivery document. In the first record you can see a transaction created by the goods received PO , with a receipt quantity of two at a price of one hundred. In the second record you can see a second transaction created by the goods receipt PO with a received quantity of two at a price of two hundred dollars each. Now lets see the release transactions. If you remember, earlier we had created one delivery document releasing a quantity of three. However you can see that in this query two separate transactions were created. The first transaction record an issued quantity of two at a price of one hundred. This transaction closes the layer created with the closed good receipt PO. The second record shows an issued quantity of one at a price of two hundred. Since the first layer was closed this quantity and price are now taken from the second goods receipt PO transaction and therefore the price changes accordingly.
Working with negative stock in FIFO method: when the stock is negative or zero after addition of a new FIFO layer , all FIFO layers of this item will be closed. The price of the released items will be taken from the last purchase price. When the stock becomes positive as a result of the addition of a new receipt transaction, two FIFO layers will be created for this item. The first layer will record the quantity required in order to bring the stock balance to zero. This layer will be closed. The second layer will record the remaining quantity of the receipt transaction and will function as the first open layer for future FIFO transactions.
Example: an items stock balance is (-4). A quantity of ten was recorded as a stock receipt transaction . results: the first layer for quantity of four, required to bring the stock balance to zero is closed. The second layer for the remaining quantity of six will function as the first open layer of this item.
Additional expenses: additional expenses maybe insurance, shipment or other fees which apply to your goods. If you are working with the continuous stock system, you can add the value of the additional expenses recorded in the row level of your purchasing documents to the inventory value of your goods. Additional expenses may also update the cost price of the items. Further information on additional expenses is provided later on. The influence of additional expenses on the inventory value will be explained further according to the moving average method.
If you are working on the additional expenses on a continuous stock system, you first need to verify that you have defined a certain G/L account under administration ,then definitions, then financials, then G/L accounts determination. Under the purchase tab page, at the bottom of this window, under the title expense account, you can see the variance account field. If you choose the affect the stock with additional expenses you need to specify a variance clearance account to clear journal entries created by the A/P journal memos based on A/P invoices or by the goods return based on the goods receipt POs withy which the additional expenses amount is changed. After you define this G/L account you can add sales and purchasing documents which include additional expenses. Lets see an example as to how the additional expenses affect the valuation when they are recorded in purchasing documents. Lets take for example a goods receipt PO. Lets select an item which is managed by a moving average costing method. The cost price of this item is one hundred in warehouse number one. Lets receive this item with a quantity of one. Select additional expenses. Lets say insurance in the amount of ten dollars. Under the column expenses one stock, you can choose either yes or no. if you choose yes, the additional expenses amount will influence the stock valuation. Lets add this document and browse back to see the journal entry. You can see that the allocation account is credited by one hundred dollars, which is the moving average price of the item. The additional expenses clearing account is credited by ten dollars which is the additional expenses amount and the stock account is debited by the total amount of these two G/L accounts. Note that the additional expenses amount recorded in the journal entry is the global amount for the additional expenses for the entire quantity. The expenses clearing Is the clearing account recorded for the stock account. Now lets place an A/P invoice in this goods receipts PO. You can see that the row that we have recorded in the goods receipt PO is now copied to the A/P invoice , including then additional expenses amount. Lets add the document, browse back and take a look at the journal entry. You can see that the vendor is credited by one hundred and ten dollars which is the total amount of document. The additional expenses clearing account is debited by ten dollars. This is to clear the amount credited in the goods receipt PO. The allocation account is credited by one hundred dollars which is the moving average price for the item. This is to clear the amount debited in the goods receipt PO. Now lets see an example of an independent A/P invoice. Lets select the vendor again, the item and type the date. Now again lets select an additional expense and type an amount. Select yes to affect the stock valuation with the amount of additional expenses lets select add. Browse back and take a look at the journal entry. Note that the expenses clearing account is not recorded in this journal entry since the stock account reflects the item price including additional expenses. As mentioned earlier, the expenses clearing is a clearing account and this journal entry records the final values affecting the inventory valuation. Therefore no intermediate accounts are recorded here. Only the vendor account and the stock account are seen.
Update costing method: starting in version 2004, it is possible to change the costing method of an item, however in case it is not linked to any open documents and its on hand stock is zero. Use the update stock valuation method report to update the costing method of your items.
Lets take a look at the update stock method window. Go to inventory. Click on item management and select update stock method. Approve the selection for the window that opens and open the update stock valuation report. Use this window to update the costing method of your items. Note that only items with a zero on hand stock and have no open documents are displayed ion this window. We can take a look at any item and see that it has no on hand stock. There is no quantity in this field. You can also see that the costing method is set to standard. In the current method column you can see the costing method of the items. In the new method column you can select the relevant costing method which you would like to use from now on for this item. In the approved column, check the boxes of all the items you would like to update. Lets select one of the items with a costing method of moving average method. When you click on update the window closes and you can see that the current method is changed from standard to moving average method.
Material revaluation: starting in 2004, It is possible to change the costing price for your items manually. This window allows you to revaluate material values by changing the moving average or the standard price of an item and calculating the total value of all the stock. There are two options for revaluating the stock: 1.the item price changes when the whole stock is affected.
2. the inventory value( credit or debit) changes with the reference to a certain quantity of the item.
Lets take a look at the material revaluation functionality. Go to inventory, then inventory transaction, then click on material revaluation. In this window you have two methods of revaluation- price change and inventory debit / credit. First lets see the price change revaluation type. In the table, select the items. Let this items current price be one hundred and two point five dollars. Lets say this resulted from the stick and that you would like the price to be one hundred dollars. Simply type new price in this column. Note that the increase and decrease G/L accounts are those defined in the selected warehouse. Click on add to select and perform the action. Go back to browse the linked journal entry. You can see that the corresponding journal entry created for stock valuation involves the stock account of warehouse number one and the decrease account specified in the corresponding field in the material evaluation window. The decrease G/L account is recorded on the journal entry due to the fact that we reduce the price from one hundred and two point five to one hundred. Lets take a look at the item .you can see now that the item whose price was changed from one hundred and two point five to one hundred. Lets take a look at the second method. Inventory debit / credit. This method allows you to record a change in the inventory value which relates to a certain quantity of the item. For example if you know that a price mistake was made in a certain receipt document, yet the inventory value of the entire quantity will be updated regardless of the quantity specified in here. Again lets select this item and now type the quantity. Note that the quantity is informative only . type a positive amount to debit the stock account and a negative amount to credit it. Note that the negative and positive amounts are dependant on the definitions made in the field displayed credit balance with a negative sign. Click on add. Lets browse back to see the journal entry. You can see that one hundred and ten dollars are recorded in the journal entry. Lets take a look at the item and you can see that the cost price was updated accordingly.
You will now be able to describe the standard costing method, describe the FIFO costing method, describe the effect of additional expenses on the stock value, update the costing methods, and use the material revaluation functionality.
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