How to set up the correct inventory valuation for the First inventory adjustment in FIFO
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Situation is the following: You purchased 5 items for 10€ and 20 items for 5€ so a total inventory valuation of 150€.
If the oldest products are the 5 items (10€/units) then the process to follow to get the correct stock and inventory valuation is:
- First update the cost on the product form to 10€
- Make an inventory adjustment for this product to set the real quantity to 5 (we assume that the initial stock position is 0). The stock valuation is 50€ for 5 unit in stock
Now we can do the same for the 20 remaining items:
- Change the cost to 5€ on the product form:
- Make an inventory adjustment where you add to the theoretical quantity the 20units (so you have a real quantity equals to 25).
Now the inventory valuation is equal to 150€
To summarize, you always have to update the cost on the product then update the quantity by summing every quantities you received before the batch you are recording in the system.
You can also create a new Receipt Operation Type "Inventory Adjustment" that uses the correct locations (Inventory Adjustment --> Stock) and unhide the price_unit field so you can process multiple products at once and enter whatever different prices they need to be.
Here is a practical example that you can follow if you have multiple warehouses and the same issue described in this forum entry.
You should always follow the same procedure explained in this forum entry by Edoardo, so first import the items and the costs of the oldest products.
Example:
Imagine that the 5 items you purchased at 10€ are located in 2 different warehouses:
3 items are in the WH1
2 items are in the WH2
1. First set the cost on the product like in the product template.
2. Then, You can go to Inventory > Operations > Inventory adjustments.
In the field locations you do not need to set any location.
3. Add the product and the quantities according to the different locations and click on validate inventory.
Now, we will do the same procedure for the 20 items purchased at 5
4. Change the cost on the product template from 10 to 5.
5. Update the product quantity with the 20 items related to its locations.
You can update the quantities in two ways:
- By product template: Enter in the product template > click on the button “units on hand” as shown by Edoardo
- By a new inventory adjustment (as said in the previous comment): Such as in the previous step, go to Inventory > Operations > Inventory adjustments and create a second inventory adjustment with the 20 items separated in the different locations.
So, this is how you can set up the inventory valuation correctly if you have multiple warehouses. Updating the quantities in just one warehouse and then do an internal transfer is not suggested because the inventory valuation will not correctly done.
Hi Ray - so you're saying that if inventory opening balances need a cost value then that's not possible via Inventory > Operations > Inventory Adjustments because there's no unit_price field? You're saying the recommended way is to create a custom operation for Inbound Transfers named "Inventory Adjustment" so that the price_unit field can be used? Helpful to know if that's the recommended path. Having unit_cost on Inventory Adjustments should probably be on the roadmap too, agree?
