An Inventory Value Report lists the monetary value of the company’s inventory. The Inventory Value is recorded in the Balance Sheet and the Loss and Profit Statement, and therefore, the accuracy of the data in this report must be ensured. An error in calculating Inventory Value can cause a mistake in calculating income and profits (and therefore income tax as well).
Aמ Inventory Value report calculates the cost of inventory according to two standard accounting methods: Moving Average and FIFO. Both methods calculate the inventory value by the cost of the items, but the calculation in each method is done differently.
The FIFO method assumes that in every sale the business sells the oldest inventory. Therefore, according to this method, the inventory has the newest items and so the cost of inventory consists of recent purchases.
The Moving Average method assumes that at every sale the business retrieves the sold items randomly. According to this method, when a business receives new inventory, that inventory is “mixed” with existing inventory, and therefore, at any given time, the value of the inventory is the weighted average of the previous inventory value and inventory value at the last purchase.
In both methods the cost prices are determined by Purchase documents only. Sale documents do not affect cost prices (only quantity). The main Purchase documents are: purchase Invoice, manufacture report and opening balance inventory transaction.
Note: In an inflation period, the Inventory Value calculated in the Moving Average method is usually lower than the Inventory Value calculated in the FIFO method (and therefore the profits are also lower).
As previously noted, both methods calculate the cost price of the items, and they meet accounting requirements. For administrative purposes, of course, Inventory Value can be calculated in other methods, for example by using a report that calculate inventory value according to one of the item price lists. Such a report can be issued using the report designer. The columns in this report will be: Sort Code, Item Key, Name, Balance On Date, List Price, Balance Multiplied by List price.
Items Filtering: Selects the items filtering to include in the report.
Inventory-value calculation date: The date for which the report is issued. This date can be earlier than the current date, for example, you can calculate inventory value for the end of the previous year.
No limitation for warehouses: When limiting the calculation to a particular warehouse (or to a group of warehouses) the Purchase documents also include entry transactions for Transfer Between Warehouses. (When the calculation is not limited to particular warehouses the software ignores transactions of Transfer Between Warehouses).
Calculation method: Calculate inventory value by FIFO or Moving Average.
Price to be printed: This section is only relevant for issuing a Moving Average report. In the Moving Average method, the average price for each inventory purchase transaction is calculated as follows: previous inventory value + (quantity in current transaction X price in current transaction).
This section is used to select which price is printed in the Unit Price column:
- Inventory Transaction Price – The price as stated in the document.
- Moving Average Price – The price calculated by the software.
Print:
- Transactions + total amounts for each item: For each item, the report will list all the documents considered in the calculation, including a list of data regarding the document inventory transaction, such as: Data, Reference, Unit Price and, of course, the Inventory Value in each record.
- Summary Only (For each item): For each item, the report will display one record that includes: Quantity, Price, and Inventory Value.
- General Summary for all items: The report will include a general summary of the inventory value for all items for which the report was issued.
Update Items File: Check this checkbox if you want WizCount to record the item’s inventory cost price in each item record. It is recommended to enable this option at least once a month for the item record to include an updated price. It is advisable to use this price when issuing a Transfer Between Warehouses. In this method, the inventory value calculation of all the warehouses together will be yield a very close approximation to the summary of the inventory value calculations for each warehouse individually.
Allow text to continue onto next line: This section is used for fields that may contain long values (e.g. Details field), requiring a longer printing space than available inside their printed column. Check this checkbox so the software doesn’t “cut” excessively long fields, but rather continue their printing into the following row (of the same column).
Import documents in inventory value calculation
When executing Shipping In from import, the calculations made for the report distinguish between items released from a Bonded Warehouse and unreleased items.
A bonded Warehouse is a warehouse in which imported items may be stored without payment of duty. Therefore, the cost of the items released from the bonded warehouse is higher than the cost of the items stored inside the bonded warehouse. As previously noted, an Inventory Value report calculates the cost of items based on the quantity shipped in. When the items are in a bonded warehouse, two types of shipping in are considered – bonded warehouse shipping in, regular warehouse shipping in (after release from the bonded warehouse). If you “mix” these together, calculating inventory value may yield incorrect results. Therefore, to ensure accurate calculations, the software runs an Inventory Value calculation for items released from a bonded warehouse, and another, separate Inventory Value calculation for items that are still stored in a bonded warehouse, as if they were two different items.
The report shows the inventory transactions of the item released from a bonded warehouse. (The cost price of these items includes the release costs burdened on the item). In a separate record, under the header “Bonded Item”, the report lists the shipping in and releases from the bonded warehouse. The price in these transactions is the price without the cost of customs duty.
In both clauses, the price is shown in NIS (F.C. prices are converted into local currency (NIS), because the Inventory Value report must use a single currency).
Inventory value calculation errors
When issuing an inventory value calculation, WizCount may report the following two errors:
Insufficient Purchases: This error is displayed when the calculation is issued using the FIFO method, and the inventory balance is less than the total amount of purchases in the file (including the opening balance). Possible reason: The inventory exists due to a credit invoice. This should be corrected by recording two inventory transactions – a Shipping Out Transaction to cancel the credit invoice, and an Opening Balance Transaction.
Negative Balance: This error is reported when the inventory value is calculated using the Moving Average method, and of the days has a negative inventory balance. When the balance is negative, the Moving Average method becomes invalid. Inventory records must be corrected (through inventory transactions or by issuing the relevant documents) before the report can be reissued.
