Inventory Valuation Method: Average Cost

It is essential to have a clear understanding of your inventory valuation method as it impacts your financial inventory value. With the basic package in Rackbeat, you have the option to choose “average cost.”

Before you start registering your inventory movements, keeping a close eye on your stock, and creating sales orders, it is crucial to determine which inventory valuation method you will apply. The inventory valuation method affects how cost prices and the financial inventory value on your shelf are calculated.

The "Average Cost" Calculation of Your Purchases

When you use the average cost, your financial inventory value is calculated based on the average of your purchased items. If, however, you choose “FIFO” (First In, First Out), your financial inventory value is calculated based on the principle that the first purchased items are also sold first. It is recommended that you consult with an accounting professional before setting up your Rackbeat account. The choice between the two inventory valuation methods must be made during the installation of your Rackbeat agreement, and it is not possible to change the inventory principle after setup.

However, if you desire the FIFO inventory principle, you need to purchase our premium subscription. If you want to learn more about the two inventory principles, you can always have a discussion with one of our product specialists here.