Running Average Price Calculation - Correcting the Average Purchase Price

This help article explains how the running average price works as a stock valuation method, and how to update and correct the average price. The running average price is obtained by adding together the latest and previous purchase and dividing the sum by the number of units. This model is used to update the unit price of a product in stock.

CONTENTS

• Average price update
• Average price correction

The running average price is a stock valuation method obtained by summing the latest and previous purchase together, after which the total value of purchases is divided 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 of purchases arrives in stock.

Average price update

If stock entries of purchases need to be modified afterwards, you can update the changed average price to the product card using the function "Update average price from stock information".

You can open this function by selecting Products > Product listing > select product > Stock information > Update average price from stock information.

Average price correction

If the average price cannot be corrected by changing stock entries for some reason, you can update the known correct average price to the product as follows:

1. Check the current stock balance and average price for the product.
2. Place the product in the process basket and perform inventory for the products. This can be done as follows:
   1. Search for the product via the product listing.
   2. Tick the product as selected.
   3. At the bottom, select Add selected to process basket.
   4. Open the process basket and select Perform inventory for products.
   
   
3. Set the quantity and price to zero, which will zero out the stock for this product.
   • Change the value of the Unit price field to zero.
   • Also change the value of any stocks to zero.
   • Save the information.
   Original situation: the average price (unit price) is 8 and stock 1 has 10 pcs of the product and stock Store has 5 pcs. In total 15 pcs. Change this unit price to zero and also the value of possible stocks to zero. Save the information.
4. Check if there are products in stock whose balance is zero but which still have value. In that case, the stock value can, if necessary, be zeroed with the correction report.

   You can open the report by selecting Products > Stock reports > Stock value correction report. More information: Stock management reports

   
5. Bring to the stock value correction report, based on the search criteria, those products whose stock quantity is zero but whose stock value is non-zero. On the page, you can select the desired products and automatically create a stock value correction transaction for them.
   • The function creates a new stock transaction row that zeroes out the stock value deviation.
   • The amount of the correction transaction is the opposite number of the deviating sum.
   • The action does not affect the average price.
6. Make a Purchase stock transaction (or inventory entry) for the product, where:
   • The quantity of products is the actual number of products per stock.
   • The purchase price is the desired average price (in Netvisor, the Unit price field).
7. Make sure that the new average price has been updated to the product card after these entries.

If the stock valuation method is weighted average price calculation, the average price cannot be changed, because the value does not zero out when the quantity drops to zero and the price is considered for the entire purchase history. In practice, it is therefore not possible to set the desired new average price for the product. In this case, we recommend changing the stock valuation method in the background, for example to running average price calculation. 

Frequently asked questions

Question: How is the running average price calculated?

Answer: The running average price is obtained by adding together the latest and previous purchase and dividing the total value of the purchases by the total number of products. This unit price is used as the unit price of the product in stock, and the calculation is repeated whenever a new purchase batch arrives in stock.

Question: How do I update the average price if I have modified stock entries of purchases?

Answer: You can update the changed average price to the product card using the function "Update average price from stock information". Open the product card by selecting Products > Product listing > select product > Stock information > Update average price from stock information.

Question: How do I correct the average price if it cannot be corrected by changing stock entries?

Answer: First check the product’s current stock balance and average price. Zero the stock with an inventory by setting the quantity and price to zero, check and, if necessary, zero the stock value with the stock value correction report, and finally make a Purchase stock transaction (or inventory entry) where you use the actual product quantity and the desired average price as the unit price.

Question: Why can’t the average price be changed if the stock valuation method is weighted average price?

Answer: In weighted average price calculation, the value does not zero out when the quantity drops to zero, but the price is considered for the entire purchase history. For this reason, the desired new average price cannot be set for the product. In this case, it is recommended to change the stock valuation method, for example to running average price calculation.

Question: Does a correction transaction made with the stock value correction report affect the average price?

Answer: No, it does not. A correction transaction created with the stock value correction report zeroes out the stock value deviation, but the action does not affect the average price.

Keywords: Running average price, stock valuation, average price update

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