Stock Valuation Methods

This guide explains how to select the stock valuation method in the Netvisor system. Choosing the stock valuation method is crucial for successful stock management and affects the purchase prices of products.

CONTENTS

• Running average calculation
• Weighted average calculation
• FIFO calculation

You can access stock valuation methods by navigating to: Sales > Basic data and settings > Sales basic data

When stock management is enabled in Netvisor, selecting the stock valuation method is one of the first tasks to be done. The selection is made in the sales basic data under the subheading "Allowance settings" by choosing Manage. This is crucial to ensure the purchase prices of products are correct.

In the window that opens, you can select a new valuation method and the start date of the valuation method change as the beginning of the open fiscal year. 

The valuation method can be changed later, but it is recommended to select it right at the beginning. Changing it can cause issues if done in the middle of the fiscal year. Later, the selection can be made from the same place in the sales basic data. The role of user administrator is required to select and change the stock valuation method. 

There are three different stock valuation methods available - Running average calculation, Weighted average calculation, and FIFO calculation. Next, we will briefly go through what each entails.

Running average calculation

• Running average calculation is a stock valuation method obtained by summing the latest and previous purchase together, then dividing the total value of purchases by the total number of products.
• Costs are calculated based on the running average of units.
• This unit price is updated for all products in stock as the unit price, and this calculation is repeated whenever a new batch arrives in stock or when stock is reduced at a unit price deviating from the average price at the time of use.

Weighted average calculation

• Weighted average in Netvisor is a stock valuation method obtained by summing the stock together for the entire purchase history, then dividing this number by the number of purchases for the entire stock history.
• Costs are calculated based on the weighted average of units.
• We recommend using FIFO calculation or Running average calculation instead.

FIFO calculation

• The costs of units purchased first are allocated to the units sold last.
• The method assumes that the materials and supplies that arrived first in stock are used first.
• Based on the business income tax law, which strongly affects business bookkeeping, the inventory value must be calculated according to the FIFO method.
• In FIFO calculation, products are handled batch-wise, and thus it is known from which batch products are taken and from which batch products are in stock at the end of the period. At the end of the period, the newest product batches remain in stock, and the stock value is formed based on the value of these remaining products.

Keywords: Stock valuation method, running average calculation, weighted average calculation, FIFO calculation, stock management.

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