Valuing Inventory at Closing

Inventory valuation is a key step in the accounting closing process. It lets you determine the exact value of your inventory at the end of the accounting period, factoring in both quantity and value changes. From an accounting standpoint, valuation ensures that inventory appears under Assets on the statement of financial position at closing. In this article:

• Valuing a product inventory
• Related book entries

Valuing a product inventory

Inventory valuation at the end of the accounting period works on two levels:

• Inventory quantities available for each product: this requires a physical count for each inventory item;
• Unit inventory value: this unit value is calculated based on the cost of purchases associated with that inventory (inventories are valued using the weighted average cost method). For more information, see the article on Weighted Average Cost.

At closing, you can perform this two-level check from the Accounting > Closing → Inventory page.

Inventories with lines that have no book entry will not appear on the valuation page. To add them to your accounting later — and be able to value them at closing — edit the inventory and check the "Record in accounting" box. See this article for more details.

Related book entries

Purchases and inventory changes during the accounting period

It all starts with recording an expenditure entry when you purchase the goods that make up the inventory.

To do this, go to Accounting > Book entry > Expenditure and check the Create an inventory box. You will be prompted to enter the quantity purchased.

You can then adjust this inventory throughout the accounting period by restocking or distributing it from the Product Sales > Inventory Management page or from Accounting > Book entry > Inventory Management. A line is created for the initial inventory, then for each new restock or distribution.

Inventory valuation at closing

When you value inventories at closing, the following entries are created:

• The value of the inventory is recorded as a debit to an account of type 37XXXX;
• As the offsetting entry, the same amount is recorded as a credit to account 603000.

Example of an inventory valuation entry at the end of the accounting period:

Account 37 appears on the statement of financial position to reflect the inventory value as an asset at closing. Account 603 reflects only the change in inventory compared to the previous accounting period.

Inventory reversal entry at the start of the following accounting period

Once the closing is complete and the next accounting period is open, a reversal entry (the inverse entry) will be automatically posted by the system to offset the closing valuation.

The reversal entry will only be created automatically if the valuation is entered from Closing > Inventory. If the entry is created via the journal book entry, the reversal will need to be posted manually.

Example of an inventory valuation reversal entry at the start of the accounting period:

Inventory valuation is performed at every closing and reflects the changes in both value and quantity of the inventory over the course of the accounting period.

A new valuation will therefore be performed at the end of the following accounting period. Since this is a balance sheet entry, it represents a snapshot of the organization's assets at a specific point in time.