Inventory Reporting After Changing the Costing Method
You can select the type of inventory costing method your business uses. The cost of your inventory is made up by your items' purchase prices and all costs incurred in acquiring these items. The costing method you choose determines how you handle the costs associated with buying the same items at different purchase prices over a certain period. Your inventory reports reflect the costing method you choose. Average costing is the default costing method.
When inventory costs incur depends on whether you use the Advanced Receiving feature. For a procedure to enable this feature, see Setting a Default Inventory Costing Method.
LIFO/FIFO Costing if You Do Not Use Advanced Receiving
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Costing occurs at time of bill entry
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Inventory costing is determined by amounts entered on bills for inventory items
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No inventory costing exists before a bill is entered
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If a purchase order is still open when a period closes, you can choose to:
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Reopen the period and change the purchase order amounts so they tie to the bill
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Leave the discrepancy because it has no impact on accounting
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Transactions that might affect inventory costing:
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Create Invoices
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Enter Cash Sale
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Write Checks
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Use Credit Cards
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Enter Bills
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Issue Credit Memo and Refund Cash Sales
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affects inventory costing the same way a purchase does
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most recent value used for LIFO
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oldest value used for FIFO
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quantities returned are added back to inventory available for sale
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Enter Vendor Credits
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most recent value used for LIFO
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oldest value used for FIFO
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quantities credited decrease the quantity of inventory available for sales
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Adjust Inventory
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affects inventory costing the same way purchases and sales do
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most recent value used for LIFO
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oldest value used for FIFO
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quantity increases add inventory available for sale
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quantity decreases lower inventory available for sale
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LIFO/FIFO Costing if You Use Advanced Receiving
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Costing occurs at time of item receipt
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Inventory costing is determined by the amounts entered on purchase orders, however, are dated by the item receipts
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No inventory costing exists before there is an item receipt
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If a purchase order is still open when a period closes, you can choose to:
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Reopen the period, delete the item receipt, change the purchase order amounts so they tie to the bill, and then recreate the item receipt
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Create a journal entry to post the inventory costing variance in the new period
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Enter the bill with variances and accept reporting discrepancies
For example, if the bill price is higher than the purchase order price, inventory costing will be understated.
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Transactions that might affect inventory costing:
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Create Invoice
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Enter Cash Sale
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Write Checks
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Use Credit Cards
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Enter Purchase Orders – this determines the inventory costing cost
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Item Receipt – this determines the inventory costing date
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Issue Credit Memo and Refund Cash Sale
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affects inventory costing the same way a purchase order does
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most recent value used for LIFO
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oldest value used for FIFO
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quantities returned are added to inventory available for sale
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Enter Vendor Credits:
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most recent value used for LIFO
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oldest value used for FIFO
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quantities credited decrease the inventory available for sale
-
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Adjust Inventory
-
affects inventory costing the way purchases and sales do
-
most recent value used for LIFO
-
oldest value used for FIFO
-
quantity increases add inventory available for sale
-
quantity decreases lower inventory available for sale
-