Inventory Valuation Methods

In Great Plains, the cost posted to General Ledger differs among different inventory valuations methods. GP supports the following Valuation Methods:

 FIFO valuation method or LIFO Perpetual valuation method

" The Actual Cost is posted to the General Ledger when the item is received in Inventory. The Actual Cost is posted to the General Ledger when the item is sold, decreased, or transferred."

FIFO valuation method or LIFO Periodic valuation method

" The Actual Cost is posted to the General Ledger when the item is received in Inventory. The Standard Cost is posted to the General Ledger when the item is sold, decreased, or transferred."

Average perpetual valuation method

" The Actual Cost is posted to the General Ledger when the item is received in Inventory. The Average Cost is posted to the General Ledger when the item is sold, decreased, or transferred."

Inventory value differs according to the adopted valuation method, as shown below;

• FIFO or LIFO Perpetual Valuation | On Hand Quantity is Multiplied By the Cost at which Item Was Received.

• Average Perpetual Valuation | On Hand Quantity is Multiplied By The Current Cost of the Item

• FIFO or LIFO Periodic | Valuation On Hand Quantity is Multiplied By The Standard Cost of the Item.

I will shed a light on the cost calculation criteria in Dynamics GP when the valuation method is FIFO Perpetual through the following Case Study

Item Number	Date Received	Quantity	Quantity Sold	Unit Cost	Extended Cost
100XLG	09/04/2011	9	0	70	630
100XLG	10/04/2011	10	0	72	720
Grand Total		19	0	142	1350

Points to Consider: 

- When selling 12 units of (100XLG) on price $ 95

- Items received first are sold first

- The following transactions are recorded on GP 

Sales
	Debit	Credit
Accounts Receivable / Cash	1140
Sales		1140

Cost (COGS)
	Debit	Credit
COGS	(9*70) + (3*72)
Inventory		(9*70) + (3*72)

 

Dynamics GP Help Note !

• Item Purchase Receipts Report Helps in determining the Cost & Quantities Available for Each Receipt

• Item Purchase Receipts Report and Stock Status Report are always the same (same inventory source)

 
Valuation Methods Pros and Cons

Valuation Method	Pro’s	Con’s
FIFO Perpetual And LIFO Perpetual	- Easy Management & Easy for  Inventory and GL Reconciliation - Purchase Receipt and Stock Status always Shows the Cost which appears in GL	- Cost Of Sales will be determine by first/last layer of receiving - This needs  to look into purchase receipt  detail
Average Perpetual	One Cost For All sales which appears in Item Card	- Back dated posting will affect already Posted Receipts Already posted Sales. Which creates Variances continuously
FIFO Periodic And LIFO Periodic	- Helps If company wish to have standard costing for period of time	It requires periodic Cost revaluation which increase inventory management task

  

Best Regards,

Mahmoud M. AlSaadi