Visma.net ERP
About the cost of inventory
For effective inventory management, your company needs to know the value of the
inventory at its warehouses.
Inventory accuracy depends in part on how well you
account for inventory.
There are two basic methods of accounting for inventory:
- Perpetual:
By using a perpetual method, your company can estimate the total cost of its inventory at any moment, updating inventory quantities and inventory account balances by every transaction, purchase, or sale. Information is updated continually in real time with this approach, without the need to cease inventory operations for counting.
Over time, the accuracy of inventory levels and total costs may deteriorate due to theft, spoilage, losses, and other factors. - Periodic:
By using a periodic method, your company estimates inventory levels by performing periodical (cycle) counting.
Cycle counting provides the most accurate data but is expensive and disruptive to business.
With Visma.net ERP, your company can use the advantages of both methods to the extent that fits your
business.
While having perpetual inventory, you can implement the cycle counting
strategy that will help you minimise the costs of performing stocktaking while improving the accuracy of inventory levels.
For details on planning and
performing stocktaking, see About overview of stocktaking options and About stocktaking.
Multiple valuation methods
For a perpetual inventory method, you use inventory valuation methods to estimate the
cost of inventory stored at each warehouse at any moment.
Valuation (cost flow)
methods define how unit costs are calculated for each stock item on receipts and
issues, thus allowing the system to maintain a correct, up-to-date inventory
balance.
With the Inventory workspace, you can choose from the following valuation methods:
- Standard cost
- Average
- First-in-first-out (FIFO)
- Specific
You assign valuation methods to stock items in the following ways:
- By using the Item classes (IN201000) window, you can assign a valuation method to a class, which will be used for the items of the class.
- By using the Stock items (IN202500) window, you can assign a valuation method to a particular item, if you want to override the valuation method of its item class.
The valuation methods are discussed in detail in About item costs and valuation methods.
Negative quantities
In the Inventory workspace, a negative quantity of stock item of a specific item class is
allowed at a location as long as the quantity on hand is positive.
Appropriate
warnings are issued on transactions that result in negative quantities.
The Allow
negative quantity check box is located in the General settings tab of
the Item classes window.
CAUTION:
This option can be used for items with the standard cost, average cost, and FIFO valuation methods.
You may not use this option for items with lot or serial numbers assigned.
Negative quantities on hand can result when an issue has been made before the receipt specifying arrival of the certain quantity of the stock item is released.
In this case, for over-issued quantity, a new layer is created. The cost assigned to the layer is the most recent historical cost of the item.
When the inventory is actually received (on receipt in question release), the system compares the cost on the over-issue layer with the cost on the receipt, and generates a cost adjustment for the difference multiplied by the quantity on the layer (the quantity of over-issued units).
Inventory valuation and revaluation
You can review the cost of inventory on hand in the Inventory valuation (IN61550S) and Historical inventory valuation (IN61700S) reports.
Generally, standard costs are revised
at the end of the financial year based on the year’s financial results, although
they can be updated more often.
The pending standard costs and their effective dates
are entered manually for each stock item that uses this valuation method on the
Price/cost information tab of the Stock items (IN202500) window.
Pending standard costs are updated for multiple items by using the Update standard costs (IN502000) window.
For items whose standard costs are being
updated, revaluation of their cost is performed. The system generates a batch of
transactions that increase or decrease the balance of the inventory accounts,
depending on whether the pending costs are greater or less than the current costs
and updates the standard cost revaluation accounts defined by the item’s posting
class.
