Successful inventory control is essential for any enterprise. Whether your products are price-sensitive or your inventories are geographically dispersed, appropriate tools must be implemented to evaluate the inventories accurately. Odoo Inventory Module, an all-in-one business platform, does all this. In this article, I will show you how to perform inventory valuation, all the options in the Odoo Inventory Module, and how to configure and manage inventory valuation easily.

What is Inventory Valuation?

Valuation of inventory means putting a value on your inventory in dollar amounts. It is essential since it reflects on your balance sheet, is employed in tax calculations, and enables you to make informed business decisions.

Be watchful of your stock value always; you never undervalue or overvalue. Misvaluation contributes to inaccurate financial statements, loss of revenue, or failure to sustain optimal inventory management.

Inventory Valuation is a new feature added as part of your operations in Odoo, whereby it is easy to check and see.

Inventory Valuation Methods in Odoo Inventory Module

Odoo Inventory Module has many inventory valuation options that you can use depending on your company’s requirements. Let us enumerate them:

1. Standard Price

Standard price is one of the simplest and most popular valuation options in Odoo. Here, you give a standard price to all products, which won’t be impacted even if your supplier’s cost fluctuates.

Why Use Standard Price?

  • Simplicity: It is straightforward to use and incredible when your products are priced.
  • Predictability: Since the price doesn’t fluctuate, it’s easy to forecast and budget future expenses.

The drawback is that it will not be able to change the actual cost of goods when the cost fluctuates at a particular moment. Thus, as easy as it is, it might not be appropriate for firms whose product price changes very often.

2. Average Cost (AVCO)

The Average Cost method, or AVCO, calculates the weighted average cost of your products. When there is a new purchase or stock move, Odoo resets the average price of the product.

Why use Average Cost?

  • Precision: It offers a more accurate picture over time, mainly when prices vary irregularly.
  • Ideal for Bulk Purchasing: This method smoothens those fluctuations if you purchase products in bulk or at varying prices.

It is a little more effort and maintenance than the cost method, but it can be very effective in mixed-cost companies.

3. FIFO (First In, First Out)

FIFO, or First In, First Out, is selling or using up the first items that you purchase as the first items that you sell or use. FIFO forces you to use up your older inventory first and is most normally best used by companies whose products won’t spoil or run out.

Why Use FIFO?

  • Perishable Goods: If you run a food business, chemicals business, or any other perishables business, with FIFO, you get to consume the older commodities before they perish.
  • Real-World Logic: The method follows a shared sense of the actual movement of the goods and makes it easy to keep the inventory level constant.

The catch? FIFO is difficult to use when inventories are enormous, and prices are volatile. But it’s worth it if your goods are rotated due to quality or safety.

4. Real-Time (Manual) Valuation

Manual stock management is suitable for certain companies. Odoo’s Manual (Real-Time) mode offers complete flexibility because you can value the product manually. It would be best for those companies that need full control of the value of the inventory but do not need to be concerned about an interactive process.

Why Manual Valuation?

  • Customizability: If your business model demands certain adjustments or exceptions, manual valuation allows you to control these.
  • Complete Control: You can price your items based on other alternatives’ unmet needs.

Although it is the most time-consuming process, it is applied where businesses have highly particular requirements for inventory valuation.

Use of Inventory Valuation in Odoo Inventory Module

Implementing inventory valuation in Odoo is simple because it has an easy-to-use interface. Go ahead with the following steps in its use:

Step 1: Setup Your Products

Your products must be set up in Odoo before the inventory valuation.

  1. Go to the Inventory Module and select the Products menu.
  2. Select a product and then the Edit button.
  3. On the product form, you will find a section entitled Inventory Valuation.
  4. Select your preferred method of inventory valuation (Standard Price, Average Cost, FIFO, or Manual).

Step 2: Configuration of Accounting Settings

To align stock valuation with your accounts, navigate to the Accounting Module and configure the Stock Valuation Account.

  1. Navigate to the Settings menu, then inventory, and find the Valuation section.
  2. Select your preferred method of inventory valuation.
  3. Activate Real-Time or Periodic inventory updates based on your requirements.

Step 3: Regulation of Stock Movements

With the setting, any stock movement—receive products, deliver, move products in stock—will automatically revalue your stock. Odoo will post and settle all of these movements according to your setting.

How Odoo Inventory Module Handles Stock Movements and Valuation Adjustment

Inventory never remains stagnant—everything’s in motion. Saleable, returned, or internally moving by stock transfer, each movement rides on the value of the stock.

Odoo automatically records these stock movements and includes them in your inventory valuation. For instance:

  • Incoming Shipments: When the goods are received from a supplier, the valuation is adjusted with the purchase price (standard price, average cost, or FIFO).
  • Outgoing Shipping: Every time goods are shipped out to the customers, their valuation is adjusted.
  • Returns and Scrap: Their worth in case of returns or scrap would be real-time updated based on their present worth.

All the above maintains the inventory value in real-time; therefore, it is not required to value them manually.

Inventory Valuation for Financial Reporting

Your accounting is directly affected by accurate inventory valuation. Your valuations of the inventory automatically carry forward into your accounting in Odoo, assisting in creating precise balance sheets and profit-and-loss (P&L) statements.

The Inventory Valuation Report

Odoo also provides an Inventory Valuation Report, and you can view a snapshot of your current stock value. The report lets you make the proper inventory management, procurement, and sales planning decisions. It helps you:

  • Calculate the total current inventory value.
  • Gain a quick idea of the financial effect of inventory movement.
  • Make better decisions from real-time stock information.

Common Challenges and How Odoo Solves Them

Where the reward lies, inventory valuation can be a nightmare when:

  • Stock Counts Aren’t Precise: There can be human variation in your valuation. Odoo will not allow that to happen through auto-reporting and live updates.
  • Prices Keep Fluctuating: Different prices can make it a problem to keep your inventory valuation current. Odoo’s methods, such as Average Cost and FIFO, can make managing variations easier.
  • Complex Inventory Needs: For sophisticated inventory management (e.g., perishables), Odoo’s FIFO approach is an easy and efficient solution.

Odoo prevents you from such issues by automating the process to a large degree and maintains your inventory valuation updated and accurate.

Conclusion

In summary, inventory valuation is a key component of managing your business’s finances, and the Odoo Inventory Module makes this task more straightforward than ever. With multiple valuation methods and seamless integration with your financial reports, Odoo ensures you’re always in control of your stock’s value.

Regardless of which of the four you choose – standard, average, FIFO, or manual costing – Odoo gives you everything you need to keep your inventory management whirring smoothly. And with automatic refreshing and total reporting, you can sleep in bed tonight knowing your numbers are accurate. Ready to automate your inventory management? Book a free demo today and see how the Odoo Inventory Module can transform your business!

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