Movement through inventory
Entry of parts or
merchandise into inventory is normally
through purchasing. Typically, they
will be bought on account in the Accounts
Payable system (Chapter 9) or by using
Write Checks. Each purchase is
brought in at the purchase price specified,
but all subsequent inventory movements are
valued at the average cost for all units of
that item then in inventory.
When an item is sold, it is removed from inventory. The on-hand quantity on the
is reduced. The value of the items sold is calculated as the product of the average unit cost times the number sold. The balance in
is reduced by this value. If the default was accepted at item setup, the cost will go into
Cost of Goods Sold.
The invoice (or other
sales document) handles the removal of items
from inventory, but the action is somewhat
out of sight. Nothing on the invoice
directly indicates an inventory action.
Examining the Inventory Asset
account, invoices will appear with a figure in the
column. This amount is the number of units sold, times the average value. If you
this transaction, you merely see the invoice, which names the item and states the count of units sold. To find the average price at the time, you would have to divide the number sold into the
figure. The value changes will be seen to be based on exact pricing, using fractional cents if necessary.