How to Configure & Use Inventory Valuation In Odoo 15?

Inventory is usually the biggest current asset of most organizations. Having the right inventory valuation plays a crucial role in you having knowledge of the monetary value of items in your inventory. Inventory Valuation is based on the costs of the product. The main purpose of inventory valuation is to have a proper understanding of the revenue & financial wellbeing of the organization.

Odoo is a leading ERP solution that provides us the option to conduct both Automated & Manual Inventory Valuation using various costing methods.

Automated Inventory Valuation:

Odoo creates a journal entry upon receipt of goods, shipment of goods, and invoicing of goods automatically in Automated Inventory.

Manual Inventory Valuation:

The accounting team of the organization will have to make entries manually on a periodic basis such as monthly or quarterly. Manual Valuation is thus also called Periodic Valuation.

Costing methods:

Odoo has made available three costing methods for the users using automated valuation

a) Standard Price: cost is assigned by the user in product & every unit of the same product sold is given same value & reflected accordingly in the Balance sheet

b) Average Cost (AVCO): Cost of product is calculated as the average of the total quantity of products in your inventory.

c) First In First Out (FIFO): As the name indicates; in FIFO oldest product is shipped first. As the product is added into inventory; its value is reflected accordingly in the entire process. FIFO is the most commonly used method

Firstly, we have to ensure that proper configurations are made in product categories before starting inventory valuation.

Product Categories:

Inventory => Configuration => Product Categories

After opening product categories under the configuration menu in Inventory, we can see all product categories that have been created.

To create a new product category click on Create button. Opening the existing individual product category, we can see the details as well as make changes. While making changes proper guidance of professionals is suggested as it can have implications on the whole process.

  • For automated inventory valuation; we have set Inventory valuation as Automated.
  • We have selected Costing Method as FIFO.
  • We have to ensure that account details are proper as shown in the image above.

Let us now purchase a product with the above-configured settings.

Purchasing Product & Consequent Reflection in Valuation

  • Purchase product following due procedure. Create RFQ.
  • After confirming Quotation, create a purchase order for the same.
  • Receive products in the inventory & validate it.

Once validated; the monetary value will be reflected in inventory valuation in the Inventory & Balance Sheet in Accounting

Inventory Valuation After Purchase:

  • For viewing Inventory Valuation; Go to Inventory; click on Inventory Valuation under Reporting menu.
  • We can view valuation details according to products

Balance Sheet:

Accounting => Reporting => Balance Sheet

  • In Balance sheet we can view credit & debit details. Valuation of 10 units of product have been reflected

Sale of product & consequent reflection in valuation:

  • create quotation & sell the product.
  • Following due procedure, receive the payment
  • Confirm the delivery of the product

Inventory Valuation After Sale:

  • For viewing Inventory Valuation; Go to Inventory; click on Inventory Valuation under Reporting menu.

We can view that valuation is relected after reducing cost of 5 units of product sold with details of transaction in the above image.

Balance Sheet:

  • We can also see similar chnages in the Balance Sheet in Accounting where details are reflected in all accounts i.e Stock Valuation, Stock Interim(Received), Stock Interim(Delivered)

Configuring & using inventory valuation might seem a bit overwheling at the intial stage. Your consulting partner should be able to help you understand & replicate process easily. If you’re having any further queries regarding inventory valuation or if looking out for a reliable odoo implementation partner. Do reach out to us on our website