Thursday, 1 March 2012

Value for Inventory vs. Cost vs. Price - they're different!

It is important to understand the difference between three key financial values tied to your inventory.

Value for Inventory:
This is the amount of financial value you recognize for each unit in your inventory.   Don't confuse this with cost or (worse) price.  If you aren't sure, make your value for inventory equal to your unit cost.  The value for inventory can change over time due to depreciation.

Value for inventory is updated using a weighted average calculation when you build or receive new inventory.

Cost:
This is your cost when building or buying each unit of inventory.  When you purchase an item using a purchase order, the cost field gets updated to reflect the new value (if the "Update cost on purchase" check box is checked).

Price:
This is what you charge customers when selling them a unit from your inventory.