Understanding Valuation Methods
You must define the name and attributes for the primary valuation method and each of the auxiliary methods. You need to consider all of the company's valuation requirements before you can use JD Edwards EnterpriseOne Advanced Stock Valuation. These definitions tell the system how to value the stock, what to include in the valuation, and how to display and report the results.
This table describes the stock valuation methods available with JD Edwards EnterpriseOne systems:
|
Valuation Method |
Description |
|---|---|
|
Fist In, First Out (FIFO) |
This method assumes that the first inventory items purchased or manufactured are the first items sold. With FIFO, the cost of the most recently acquired items are the costs associated with the ending balance. |
|
Last In, First Out (LIFO) |
This method assumes that the last inventory items purchased or manufactured are the first items sold. The system assigns the most recent inventory costs to the current period's cost of goods sold, leaving the oldest costs in the balance sheet account. LIFO accounting requires an understanding of inventory layers and inventory liquidation. If you receive or increase inventory from one period end to the next, a new LIFO layer is created in the system. If you have a net decrease in inventory from one period end to the next, no new layer is added to the system. However, if you have a net decrease in inventory and no new layer is added, the previous period's layer is liquidated or reduced by the amount of the decrease. |
|
Weighted Average Cost |
This method calculates the inventory on a weighted average of all the purchases. |
|
Replacement/Current Cost |
This method reflects the current value of inventory for a given period. In effect, it is the cost of replacing the inventory for a specific period. You can specify the cost that will be used during the valuation, instead of using a calculated cost. |
It is not unusual for a company to need more than one method for valuating stock. For example, local governments might require a different method for financial reporting than the method that you use within the company. Tax authorities might require a different method than that used for profitability reports within a company.
With the JD Edwards EnterpriseOne Advanced Stock Valuation system, you can select one primary method of stock valuation per company to update the general ledger for standardized accounting and reporting. You can also assign auxiliary methods to use for comparison or other reporting purposes.
By selecting one of the four valuation methods in the Valuation Method Master program (P3905), you can customize both the unit cost and the negative inventory.