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Understanding Inventory (Stock) Valuations with invoiceit!Pro

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Invoicing, returning items to your supplier and write-offs reduces your inventory values.

Purchases, returns by clients and write-ons increase your inventory values.

Example: on your shelf are 5 widgets, valued at $20.40 each. You now purchase 36 more widgets at a 
cost of $18.10 each.

Valuation:

 

Quantity

Cost per unit

Total value

 

5

20.40

102.00

 

36

18.10

651.60

Totals

41

18.38

753.60

The cost per unit is calculated as Total value/Total Quantity (753.60 divided by 41) = 18.38

You now sell 12 of these widgets, leaving you 29 on the shelf.

 

Quantity

Cost per unit

Total value

On shelf

41

18.38

753.60

Sale

-12

19.06

-228.70

Totals

29

18.14

524.90

The value of the sale is calculated as follows, using the FIFO method (first in, first out):

5 widgets at 20.40 = 102.00 (these are from the old inventory, leaving none left over)
7 widgets at 18.10 = 126.70 (these are from the new inventory, leaving 29 left over)
Total: 12 widgets, combined value 228.70 (19.06 each)

The 29 widgets remaining on your shelf all come from the new inventory and have a value of 524.90 in total 
(18.14 each).

The FIFO method is good store keeping practice as it rotates your inventory and minimises write offs 
– you won’t be stuck with old inventory very often.

Understanding Inventory Count (Stocktake)

The purpose of counting your inventory is to determine its value and to check if your records match the actual 
items left. It can be done all at once (the store is often closed for this as everyone is busy counting), or a so-called 
rolling stocktake, in which you count some items today, some tomorrow, etc.

When you start invoiceit! you should enter your current inventory – either from existing records or by conducting 
a inventory count and valuation. As a date of the count, use a date older than your first transaction. invoiceit!
assumes that the count was done at the end of business on the day you entered.

You can enter something like Quantity: 20 - Value: 0 (i.e. you have 20 items that were either written off or didn’t 
cost you anything); you cannot enter something like Quantity: 0 - Value: 100. Always enter the total value.

The date of the count is important
All transactions (purchases, sales, etc) done on or before the day of the count are considered history and are not included in valuations. 
All transactions done after the day of the count will be included in valuations. See example below:

Date

Transaction

Quantity

Total Value

Comment

Jan 31, 2011

Count

24

240.00

Start of transactions

Jan 31, 2011

Sale

-10

-100.00

History (took place before count)

Feb 5, 2011

Sale

-5

-50.00

a current transaction (took place after count)

Feb 6, 2011

Print Report

19

190.00

Current values

Inventory (Stock) Adjustments

Each time you count your inventory you may find some discrepancies, where your records differ from what is 
actually on the shelf. Adjustments account for unexplained losses or gains in your inventory valuation.

Remember that any transactions that happened on or prior to the date of the count are considered history (have occurred before the count). To include them, adjust the date of the transaction.

Example 1: inventory count was on Feb 5, 2011. After the count you raised two invoices both dated Feb 4, 2011. 
Neither invoice will be considered by the inventory valuation. Change the date of both invoices to Feb 6 or later 
to ensure they reduce your inventory properly.

Example 2: inventory count was on Feb 5, 2011. After the count you entered a purchase dated Feb 2, 2011. This 
will not be considered by the inventory valuation. Change the date of the purchase to Feb 6 or later to ensure it 
increases your inventory properly.

Use write-offs if you discover, after counting, that you have fewer items than you should have (loss). 
Use write-ons if you discover, after counting, that you have more items than you should have (gain).

Examples of ‘loss’: Your transaction report shows that you had 20 widgets at last count, and since then purchased 
40 and sold 37. You should now have 23 left but the count shows up only 15. You have ‘lost’ 8 widgets. Here are 
some likely reasons:

Reason

Remedy

theft or accidental loss or damage,

Write off

client was issued a credit, but did not actually return the items

Cancel credit or change date of credit to after the current count or write off

sent to client but not invoiced,

Raise invoice

returned to supplier and not recorded in purchasing

Enter in purchasing as negative quantity (-8)

Items were used by yourself or given as samples

Raise invoice but charge $0 or write off – or transfer to assets

or other reasons. If you cannot account for those 8, you should write them off as a loss. invoiceit!Pro will prompt you.

Examples of ‘gain’: Your transaction report shows that you had 20 widgets at last count, and since then purchased 
40 and sold 37. You should now have 23 but the count shows up 25. You have ‘gained’ 2 widgets. Here are some 
likely reasons:

Reason

Remedy

a client returned items but wasn’t issued a credit

Raise credit

a purchase was not recorded

Enter purchase

an invoice was raised but the items not sent

Send items and adjust count

Item returned to shelf after being used by yourself

determine value and write on

or other reasons. If you cannot work out where the extra 2 widgets came from, write them on, if necessary at 
zero value. invoiceit!Pro will prompt you.

Write down/write up

Sometimes it is necessary to adjust the value of your inventory. In these situations you adjust only the value 
of the inventory at time of the count and have your accountant record the difference as an extraordinary loss/gain 
in your Profit & Loss Accounts.

Here are some reasons why these adjustments occur:

Write down:

  • Inventory has not moved for a while and has been depreciated

  • Items are old and new inventory is much cheaper to buy – take a loss now and improve profitability later when you sell the items.

  • To correct a mistake from the past (overvalued)

  • Items are re-valued due to market forces or for insurance purposes

Write ups:

  • Items are re-valued due to market forces or for insurance purposes (works of art, for example)

  • To correct a mistake from the past (undervalued)

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