1 Overview to Advanced Stock Valuation

Stock valuation determines the current value of a company's stock, also referred to as a company's inventory. Stock value is based on the total cost of the inventory owned by a company at a specific time. The value of stock can vary, depending on the different costs used to calculate the total cost and the method used to value the stock.

This section contains the following:

1.1 System Integration

The Advanced Stock Valuation system integrates with the following systems:

System Description
Procurement This system retrieves item costs based on the purchasing costing method defined for each item. When you receive and voucher the item, the system updates the general ledger.
Inventory Management This system stores item information that can be used by all the other systems.
Bulk Stock Management This system controls the storage, measurement, and movement of dynamic bulk inventory. This system lets you complete transactions that move bulk inventory and accurately calculate product gains and losses for each bulk stock transaction.
Sales Order Management This system retrieves item prices and costs from the Inventory Management system for sales orders. The system updates the general ledger and creates accounts receivable entries to record inventory, cost of goods sold, revenue, and tax transactions for use in cash receipts processing.
Distribution Contracts Management This system allows you to manage contracts with business partners. You can accurately accommodate loans, borrows, and exchanges and ensure the stock involved is valued correctly.
Load and Delivery Management This system confirms the release of stock from your inventory and records the amount of stock in transit, thereby accurately reflecting the actual stock to be valued at the end of a period.

The Cardex, or Item Ledger, is the central repository of all inventory and cost movements. Each program from all other JD Edwards World systems that handles inventory writes records to this table whenever inventory and cost are affected. The Advanced Stock Valuation system uses inventory information from the Cardex to ensure that the correct inventory is valuated. The following diagram identifies the programs that impact inventory balances and write entries to the Cardex.

Figure 1-1 Programs Affecting the Cardex

Description of Figure 1-1 follows
Description of "Figure 1-1 Programs Affecting the Cardex"

The Advanced Stock Valuation system uses the Cardex as the base for its processing. The system:

  • Extracts the inventory activities from the Cardex by document number, type, and item

  • Determines the various balances based on the valuation methods

  • Updates the valuation files as illustrated in the following diagram

Figure 1-2 Process Flow for the Advanced Stock Valuation System

Description of Figure 1-2 follows
Description of "Figure 1-2 Process Flow for the Advanced Stock Valuation System"

When you decide that the valuation is ready to post, the system updates the general ledger and the valuation period table. The following diagram illustrates the final step in the valuation process.

Figure 1-3 Valuation Process Final Step

Description of Figure 1-3 follows
Description of "Figure 1-3 Valuation Process Final Step"

1.2 Business Considerations

The JD Edwards World integrated systems provide the flexibility needed to accommodate the many stock valuation possibilities throughout the distribution industries. Additional features support the unique considerations of energy and chemical businesses and the demands placed on companies that must meet the requirements of many different national and local regulatory agencies.

Stock valuation is a vital component of all distribution and manufacturing industries. It provides the information you need for reporting purposes and to evaluate profit margins.

You calculate stock value on a periodic schedule, generally, monthly, quarterly, and yearly. Various business and government requirements determine when a company completes the reporting to:

  • Measure and manage stock levels and related cash flow

  • Comply with the accounting standards that require companies to provide a true and fair value of the company's financial performance and capital used

Stock valuation reporting is necessary for corporate, management, and statutory purposes. Corporate reporting analyzes the value of the company's stock and the cost of the stock that was sold (Cost of Goods Sold). Management reporting verifies that your company's storage and handling methods meet the laws enforced by various governmental organizations.

To determine how to account for your company's inventory, you must:

  • Identify the items to include in inventory

  • Identify all of the costs assigned to the inventoried items

  • Choose a stock valuation method to distinguish costs associated with inventory that has been sold from inventory that is still on hand

1.2.1 Identify Inventory

To value your stock, you must be able to identify the items in your inventory. Possession of legal title of inventory is a fundamental criterion for determining whether items should be reflected in the inventory of a seller or a buyer. However, possession of title does not necessarily coincide with actual physical possession of the goods. For example, title to goods that are in the possession of a common carrier in transit from the seller to the buyer should remain in the inventory of the seller until delivered. The integration of the various systems ensures that you can identify your entire inventory.

The following diagram illustrates how product enters your inventory and some of the ways you can deplete your inventory.

Figure 1-4 Inventory Identification

Description of Figure 1-4 follows
Description of "Figure 1-4 Inventory Identification"

Many companies consolidate items into groups of similar items for stock valuation purposes. This process is called "pooling" or "product consolidation." When you consolidate items, you can apply a single purchase price and associated costs to all items in that pool.

Whether each item is valued separately or as a pool varies from industry to industry. The Advanced Stock Valuation system allows you to valuate by individual items, pools, or both.

Many companies maintain contracts with other companies to store bulk product. Therefore, bulk stock might be commingled and belong to more than one owner. The Advanced Stock Valuation system allows you to exclude commingled stock from the valuation.

1.2.2 Identify Costs

You generally post inventory at an amount that reflects the price paid plus all costs incurred to bring the items to the location and to make them salable.

In some distribution industries, especially energy and chemical businesses, the actual purchase cost from a supplier might not be known at the time items are received into your inventory or after you issue a voucher for payment.

The JD Edwards World systems allow you to update, or "recost," these open receipts and paid vouchers. With this feature, you can ensure that the value of your stock is represented by the actual cost.

1.2.3 Choose Stock Valuation Methods

Determining which method to use to assign inventory costs to the income statement cost of goods sold (COGS) account is a major management decision. If the items have been sold, you must reflect the costs assigned to those goods on the period's income statement. If the items remain unsold, you must be able to determine which portion of the cost of goods available for sale is to be assigned to the income statement and which portion is to be assigned to the balance sheet.

Inventory items physically move out of the business when they are sold. Similarly the costs assigned to those items must move from the balance sheet to the income statement, where they are no longer reflected as an available resource, but as an operating expense for that period.

The Advanced Stock Valuation system provides four valuation methods for all items in your inventory:

  • First In/First Out (FIFO)

  • Last In/First Out (LIFO)

  • Weighted Average Cost

  • Replacement/Current Cost

In this documentation, we refer to these methods as stock valuation methods to differentiate between the cost of an item and its current value. "Cost" refers to the cost of an item so you can determine its selling value. Valuation determines the value of any item that is currently in your inventory for reporting and financial purposes.

A company may need to use more than one valuation method for valuing their stock. For example, local governments might require one method for financial reporting and another for tax reporting.

With the Advanced Stock Valuation system, only one primary valuation method is used per company to update the general ledger for standardized accounting and reporting. However, you can use other methods for comparison or other reporting purposes.

1.2.4 Dual Currency

Businesses operating in an inflationary market need to be able to maintain a set of books in two currencies, the local currency and a stable currency, commonly U.S. dollars. The Stock Valuation system allows a business to value inventory based on a valuation method, such as LIFO, FIFO, and replacement/current cost. With Dual Currency, a second ledger type allows a business to adjust its inventory in both the domestic and the stable currency.

1.3 Tables and Descriptions

The following identifies the primary stock valuation tables and their contents:

Table Description
Item/Pool Valuation Master (F3901) Contains the information for all valuation methods, including:

  • Item number or pool

  • Unit of measure

  • Valuation method

  • User identification and update information
Valuation Method Master (F3902) Contains the information for all valuation methods you define for your company.

See Chapter 8, "Define Valuation Methods."
Valuation Period Detail (F39051) Contains all of the stock valuation information for the period, including:

  • Opening quantities and amounts

  • Period incoming quantities and amounts

  • Period outgoing quantity

  • Outgoing cost amount

  • Closing quantities and amounts

  • LIFO adjustment and adjustment cost

  • General ledger classification

  • Posted and closed information

  • User identification and update information

See Section 5.2, "Running the Periodic Extraction."
Valuation Layers (F39052) Contains all of the information for the historical layers for all stock valuation methods you define for your company, including:

  • Receipt information

  • Current quantity, amount, and allocations

  • Last allocation amount, quantity, and date

  • Posted and closed information

  • User identification and update information
Period Additional Quantities (F39053) Contains the valuation information for those methods you defined to include not-in-stock inventory, in-transit inventory, or loan and borrow accommodations.
Valuation Document Summary (F3906) Contains the cost information summarized by document type.

1.3.1 Processing Options

See Section 14.2, "Item/Pool Valuation Master (P3901)."

1.4 Menu Overview

The following diagram identifies the commonly used menus for the JD Edwards World Advanced Stock Valuation system.

Figure 1-5 Menus for the Advanced Stock Valuation System

Description of Figure 1-5 follows
Description of "Figure 1-5 Menus for the Advanced Stock Valuation System"