Inventory valuation configuration
Inventory valuation refers to how you value your stock. It’s a very important aspect of a business as the inventory can be the biggest asset of a company.
Inventory valuation implies two main choices:
The cost method you use to value your goods (standard, fifo, avco)
The way you record this value into your accounting books (manually or automatically)
Those two concepts are explained in the sections below.
Costing Methods: Standard, FIFO, AVCO
The costing method is defined in the product category. There are three options available. Each of them is explained in detail below.
Operation
Unit Cost
Qty On Hand
Delta Value
Inventory Value
€10
0
€0
Receive 8 Products at €10
€10
8
+8*€10
€80
Receive 4 Products at €16
€10
12
+4*€10
€120
Deliver 10 Products
€10
2
-10*€10€20
Receive 2 Products at €9
€10
4
+2*€10
€40
In Standard Price, any product will be valued at the cost that you defined manually on the product form. Usually, this cost is an estimation based on the material and labor needed to obtain the product. This cost must be reviewed periodically.
Inventory Valuation: Manual or Automated
There are two ways to record your inventory valuation in your accounting books. As the costing method, this is defined in your product category. Those two methods are detailed below.
It is important to also note that the accounting entries will depend on your accounting mode: it can be continental or anglo-saxon. In continental accounting, the cost of a good is taken into account as soon as the product is received in stock. In anglo-saxon accounting, the cost of a good is only recorded as an expense when this good is invoiced to a final customer. In the tables below, you can easily compare those two accounting modes.
Usually, based on your country, the correct accounting mode will be chosen by default. If you want to verify your accounting mode, activate the developer mode and open your accounting settings.
Manual Inventory Valuation
In this case, goods receipts and deliveries won’t have any direct impact on your accounting books. Periodically, you create a manual journal entry representing the value of what you have in stock. To know that value, go in .
This is the default configuration in Odoo and it works out-of-the-box. Check following operations and find out how Odoo is managing the accounting postings.
Continental Accounting
Debit
Credit
Assets: Inventory
50
Assets: Deferred Tax Assets
4.68
Liabilities: Accounts Payable
54.68
- Configuration:
Purchased Goods: defined on the product or on the internal category of related product (Expense Account field)
Deferred Tax Assets: defined on the tax used on the purchase order line
Accounts Payable: defined on the vendor related to the bill
At the end of the month/year, your company does a physical inventory or just relies on the inventory in Odoo to value the stock into your books.
Create a journal entry to move the stock variation value from your Profit&Loss section to your assets.
Debit | Credit | |
|---|---|---|
Assets: Inventory | X | |
Expenses: Inventory Variations | X |
If the stock value decreased, the Inventory account is credited and the Inventory Variations debited.
Anglo-Saxon Accounting
Debit
Credit
Assets: Inventory
50
Assets: Deferred Tax Assets
4.68
Liabilities: Accounts Payable
54.68
- Configuration:
Purchased Goods: defined on the product or on the internal category of related product (Expense Account field)
Deferred Tax Assets: defined on the tax used on the purchase order line
Accounts Payable: defined on the vendor related to the bill
At the end of the month/year, your company does a physical inventory or just relies on the inventory in Odoo to value the stock into your books.
Then you need to break down the purchase balance into both the inventory and the cost of goods sold using the following formula:
Cost of goods sold (COGS) = Starting inventory value + Purchases – Closing inventory value
To update the stock valuation in your books, record such an entry:
Debit | Credit | |
|---|---|---|
Assets: Inventory (closing value) | X | |
Expenses: Cost of Good Sold | X | |
Expenses: Purchased Goods | X | |
Assets: Inventory (starting value) | X |
Automated Inventory Valuation
In that case, when a product enters or leaves your stock, an accounting entry will be automatically created. This means your accounting books are always up-to-date. This mode is dedicated to expert accountants and advanced users only. As opposed to periodic valuation, it requires some extra configuration & testing.
First, you need to define the accounts that will be used for those accounting entries. This is done on the product category.
Continental Accounting
| Debit | Credit | Balance | |
|---|---|---|---|
| 1 Assets | |||
| 11000 Cash | |||
| 13100 Accounts Receivable | |||
| 14000 Inventory | |||
| 14100 Raw Materials Inventory | |||
| 19000 Deferred Tax Assets | |||
| 2 Liabilities | |||
| 21000 Accounts Payable | |||
| 26200 Deferred Tax Liabilities | |||
| 3 Equity | |||
| 31000 Common Stock | |||
| 4 Revenue | |||
| 41000 Goods | |||
| 5 Expenses | |||
| 51000 Purchased Goods | |||
| 52000 Purchased Services | |||
| 58000 Inventory Variations | |||
| 59000 Other Operating Expenses |
Configuration:
Accounts Receivable/Payable: defined on the partner (Accounting tab)
Deferred Tax Assets/Liabilities: defined on the tax used on the invoice line
Revenues/Expenses: defined by default on product’s internal category; can be also set in product form (Accounting tab) as a replacement value.
Inventory Variations: to set as Stock Input/Output Account in product’s internal category
Inventory: to set as Stock Valuation Account in product’s internal category
Anglo-Saxon Accounting
| Debit | Credit | Balance | |
|---|---|---|---|
| 1 Assets | |||
| 11000 Cash | |||
| 13100 Accounts Receivable | |||
| 14000 Inventory | |||
| 14100 Raw Materials Inventory | |||
| 14600 Goods Issued Not Invoiced | |||
| 19000 Deferred Tax Assets | |||
| 2 Liabilities | |||
| 21000 Accounts Payable | |||
| 23000 Goods Received Not Purchased | |||
| 26200 Deferred Tax Liabilities | |||
| 3 Equity | |||
| 31000 Common Stock | |||
| 4 Revenue | |||
| 41000 Goods | |||
| 5 Expenses | |||
| 51100 Cost of Goods Sold | |||
| 52000 Manufacturing Overhead | |||
| 53000 Price Difference |
Configuration:
Accounts Receivable/Payable: defined on the partner (Accounting tab)
Deferred Tax Assets/Liabilities: defined on the tax used on the invoice line
Revenues: defined on the product category as a default, or specifically to a specific product.
Expenses: this is where you should set the “Cost of Goods Sold” account. Defined on the product category as a default value, or specifically on the product form.
Goods Received Not Purchased: to set as Stock Input Account in product’s internal category
Goods Issued Not Invoiced: to set as Stock Output Account in product’s internal category
Inventory: to set as Stock Valuation Account in product’s internal category
Price Difference: to set in product’s internal category or in product form as a specific replacement value