Valuation cheat sheet

Costing Methods

Odoo supports 3 costing methods configured in accounting’s settings and, optionally, the product’s category.

Standard Cost: fixed unit cost, updated manually

Operation	Unit Cost	Qty On Hand	Delta Value	Inventory Value
	$10	0		$0
Receive 8 @$10	$10	8	+8×$10	$80
Receive 4 @$16	$10	12	+4×$10	$120
Deliver 10	$10	2	-10×$10	$20
Receive 2 @$9	$10	4	+2×$10	$40

Average Cost: weighted average of all units

Operation	Unit Cost	Qty On Hand	Delta Value	Inventory Value
	$0	0		$0
Receive 8 @$10	$10	8	+8×$10	$80
Receive 4 @$16	$12	12	+4×$16	$144
Deliver 10	$12	2	-10×$12	$24
Receive 2 @$6	$9	4	+2×$6	$36

FIFO: first in, first out

Operation	Unit Cost	Qty On Hand	Delta Value	Inventory Value
	$0	0		$0
Receive 8 @$10	$10	8	+8×$10	$80
Receive 4 @$16	$12	12	+4×$16	$144
Deliver 10	$16	2	-8×$10 -2×$16	$32
Receive 2 @$6	$11	4	+2×$6	$44

Note

Removal strategies also support LIFO and FEFO, but they only impact which product is first picked, not the valuation method. For example, you can pick using LIFO, but using average cost for valuation, as LIFO is not allowed by IFRS.

Inventory vs Accounting

The Inventory app keeps track of the inventory value in real time as you receive and deliver goods. The reporting menu lets you analyze inventory quantities and values by company, location, product, and more.

The Accounting app updates accounts when you receive invoices or bills. Even though receipts and invoices differ, it’s not practical for accountants to post journal entries for every inventory movement. So, they post a closing entry to account for the difference between what has been invoiced and received/delivered. This closing process happens usually once a year for SMEs, or once a month for larger companies.

	Accounting	Inventory
Purchase Order	/	/
Receipt	/	✓
Vendor Bill	✓	/
Sales Order	/	/
Customer Invoice	✓	/
Delivery	/	✓
Closing Entry	✓	/

Accounting Methods

There are two accounting practices on how to maintain your accounts:

Periodic: Post vendor bills as expenses by nature, and update stock valuation in the closing entry by reducing expenses (stock variation). This is the best practice in Europe.

Perpetual: Post vendor bills as assets (stock valuation), report expenses when goods are sold (cost of goods sold). This is the best practice in countries that follow Anglo-Saxon accounting, like the USA and India.

• Stock Account on the product’s category

• Stock Variation on the stock account

• Expense/Cost of Goods Sold on the product/category

• Inventory Adjustment on the Inventory Loss location (optional, recommended for Anglo-Saxon accounting)

• Expense on the stock account (for perpetual Continental accounting only)

	EU Periodic	EU Perpetual	US Periodic	US Perpetual
ADJUSTMENT		Stock		Stock
		LOSS		Shrinkage
BILL	Expense	Stock	COGS	Stock
	Payable	Payable	Payable	Payable
INVOICE		Expense		COGS
		Stock		Stock
	Income	Income	Income	Income
	Receivable	Receivable	Receivable	Receivable
Closing	Stock	Stock	Stock	Stock
[1]	Variation	Expense	Variation	Variation
[2]	LOSS		Shrinkage
[3]		Variation
		Expense

1. Inventory valuation - Accounting valuation

2. Inventory valuation lost, only if an account is set on the loss location

3. Accounting valuation end of period - Valuation beginning of period

Accounting Entries

Journal Entries Configuration

Reporting

In Inventory

Open Inventory – > Reporting ‣ Stock to view your current inventory level and valuation for each product, or to review historical data as of a previous date.

Unit cost

To check a product’s existing unit price updates and their origins, click on the product’s Unit Cost. In AVCO this allows you to understand how the currently used value was calculated.

Total value

To see all incoming quantities for which you still have a remaining quantity and the value used for their valuation, click on a product’s Total Value.

• In AVCO or standard cost, the used value is always the current average unit cost.

• In FIFO, remaining units from each previous incoming move retain their own individual valuation.

In FIFO or AVCO, remaining quantities from a previous incoming move can have their value adjusted if necessary: Select the incoming moves to be adjusted, click Actions, and then click Adjust Valuation. Enter the new Value and, optionally, a Description.

In Accounting

To view the difference between the accounting stock value and the current inventory value recorded thanks to the incoming moves with a remaining quantity, go to Accounting ‣ Review ‣ Inventory Valuation.

To generate a new accounting entry to review and post, click Generate Entry.

To view a list of sales and purchase orders for which accrual entries should be encoded, go to Accounting ‣ Review and select the relevant menu item (Invoices not received, Invoices to be issued, Prepaid expenses, or Deferred Revenues).

With Anglo-Saxon perpetual accounting, this will also help to distribute recorded inventory variations to accounts such as Bills to Receive/GRNI or COGS as shown in the Accounting Entries and Journal Entries Configuration sections.