OfficeMate Home Office User's Guide - OfficeMate Software Solutions

Chapter 14 Using the General Ledger Interface
Understanding Inventory Valuation Methods
For example, if a initial quantity of 10 of a given product is received at a cost of $100
each, the average cost for the product is calculated as
-------------------------------------------------------- 0 $0 + 10 $100
=
0+
10
$100
When the item receipt transaction is posted to the accounting system, the inventory
value reported is 10 × $100 = $1000. This is the same value reported by the Inventory
Valuation report.
Next, if 2 more units of that same product are received, but at a new cost of $130 each,
the system will export the additional $260 inventory value (2 × $130) to the accounting
system. The product's new average cost is calculated as
--------------------------------------------------------------
10 $100 + 2 $130 $1,260
= --------------- = $105
10 + 2
12
This value is stored with the product and used on the Inventory Valuation report. The
report would show an inventory value of 12 (on hand) × $105 (average cost) for an
inventory value of $1,260.
This is the same as the total inventory value exported to the accounting system:
$1,000 (first receipt) + $260 (second receipt) = $1,260.
When that product is sold, the value of inventory is reduced by the quantity sold
multiplied by the average cost. A new average cost is not recalculated when the
product is sold or otherwise reduced.
Because the total inventory value reported in the Valuation Report is the same as the
net inventory value exported to the accounting system, auditors can verify the
inventory value in the accounting system by using reports from OfficeMate. This level
of auditability is not possible when using Standard Cost as an Inventory Valuation
Method.
Note
For information about setting your inventory valuation method in
OfficeMate, go to To set up basic General Ledger settings on page 693.
OfficeMate Home Office User’s Guide 719