OfficeMate Home Office User's Guide - OfficeMate Software Solutions

Understanding Inventory Valuation Methods
Chapter 14 Using the General Ledger Interface
Understanding
Inventory
Valuation
Methods
The value of inventory is maintained in the accounting system by one or more
inventory general ledger accounts. Accountants and auditors may verify this value
against the Inventory Valuation report in OfficeMate.
The Inventory Valuation report calculates the total inventory value, for one or all
locations, by multiplying the quantity on hand by the valuation cost for each product
and adding the sum total. The Inventory Valuation report may be run for one or more
financial groups. The value of individual products depends on the valuation method
(or costing method) as prescribed by company policy and specified in the G/L Setup
tab of the General Ledger Setup window. Two inventory valuation methods are
supported in OfficeMate:
• Standard Costing on page 718
• Average Costing on page 718
Additional valuation methods may be added in future versions of OfficeMate.
Standard Costing
Standard costing is the simplest inventory valuation method. When Standard Costing
is selected, the value of each item is set in the Product Cost text box on the Product
window in OfficeMate. This cost value may be changed manually or updated
automatically whenever product is received. The major disadvantage of standard
costing is that when the cost of an item is changed and there is quantity on hand, the
total inventory value as reported on the Inventory Valuation report is also changed.
However, because no actual transaction is taking place, the change in cost is not
reflected in the accounting system. Therefore, the value of inventory in the accounting
system can not be accurately verified against the production system.
Note
For information about setting your inventory valuation method in
OfficeMate, go to To set up basic General Ledger settings on page 693.
Average Costing
Average costing is somewhat more complex, but provides for a much more auditable
inventory value, consistent with the value exported to the accounting system. When
Average Costing is selected, OfficeMate calculates each product’s average cost such
that the total inventory value matches the value of inventory as exported to the
accounting system.
The average cost of each product is calculated whenever the product is received into
inventory, according to the following formula:
Average Cost =
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Prior Qty on Hand Prior Avg Cost + Received Qty Received Cost
Prior Qty on Hand + Received Qty
718 OfficeMate Home Office User’s Guide