| How it works: Product Costing, accounting for the value of products in real-time |
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There are two valuation methods in Odoo. Manual and Automated.
in automated valuation, Odoo attempts to keep your inventory value in your ledger and your stock levels in synch.
In manual valuation, you must do this manually.
In manual valuation, when you issue an invoice, a journal entry is posted:
Dr. AR
Cr. Sales
Same on a vendor bill:
Dr. Asset/Expense
Cr. AP
Notice that no COGS or Invenory entries are posted. You must make these entries manually on a perodic basis.
Delivery
In automated valuation. when we deliver, we post a journal entry.
Dr. Stock Interim Delivered
Cr. Inventory Valuation
Because we are decrementing our inventory, we must credit our inventory valuation account. We need a counterpart,, which will be an interim account.
When we invoice, we clear the interim account with the following entry:
Dr. AR
Cr. Sales
Dr. COGS
Cr. Stock Interim Delivered
Receiving
When we receive inventory, we also post a journal entry:
Dr. Inventory Valuation
Cr. Stock interim received
Our counterpart to valuation in this case will be another interim account.
The vendor bill will clear this interim account:
Dr. Stock Interim received
Cr. AP
Inventory Adjustments
We may loose or gain inventory with an adjustment. This of course affects our stock levels and inventory valuation. We must therefore post a journal entry.
When do an inventory adjustment and find we have less than we though we had, we need to reduce our inventory levels and our valuation. We do this with a stock movement to a virtual "Adjustment" location and corresponding journal entry:
Dr. Shrink
Cr. Inventory Valuation
We must of course credit inventory valuation, and the counterpart is typically COGS or a Shrink expense account.
When the opposite occurs and we find we have more inventory than we thought we had, we need to increase our stock levels and inventory valuation. We do this with a move out of "Adjustment" and a corresponding journal entry:
Dr. Inventory Valuation
Cr. Shrink
The counterpart is typically the same shrink account as used for a loss.
It is possible to set up shrink accounts at the level of the product. That is, each product may have its own shrink account.
Scrap
Scrap behaves the same as inventory adjustment, but with its own set of virtual locations. At the time of scrapping, a user chooses the scrap location and scrap account. Odoo comes with one scrap location/account by default, but more may be configured.
Manufacturing
When we manufacture, we consume raw materials and produce finished goods. Here again we use an interim account.
When we consume raw materials, we decrease our inventory and therefore credit our Inventory Valuation account.
Dr. WIP or Stock Interim Manufacturing
Cr. Inventory Valuation*
Our coutnerpart in this case is WIP.
When we produce finished goods, we increase our inventory and therefore debit our Inventory Valuation account.
Dr. Inventory Valuation*
Cr. WIP
*Inventory valuation accounts are set at the product category level, therfore finished goods and raw materials may have their own accounts.
When a manufacturing order is closed, one journal entry is posted for each product consumed and produced. A manufacturing order that produces one finished good out of 3 componnets, you will see 4 journal entries posted. All entries are posted at time of closing. This means that WIP should theoretically always have a balance of 0.
Any value in the WIP account can be assumed to be a difference between value of goods consumed and produced by manufacturing.
Configuration
The counterpart accounts for manufacturing, adjustment, and scrap are set on virtual locations.
the production and adjustment lcoations which will be used for a prodcut are set at the product level
The input and output interim accounts, COGS, sales, and Valuation accounts are set at the product category level
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