What is a weighted average inventory?

Inventory is an important accounting concept for retail, production and similar companies. For this purpose there are many different methods such as the first, first out (FIFO); Last, first out; and weighted average inventory. The second option is quite common in business, although FIFO is perhaps the most popular option among these three. The weighted average inventory creates the average costs of all goods prepared by the company for sale in its account of finished goods. The most basic formula for this inventory valuation method is an association of all stocks of stocks produced or purchased and distributing the number into total related costs.

The purpose of the valuation of stocks is to have the most accurate amounts of the dollar in two accounts: the inventory of the finished goods and the costs of the goods sold. The inability to correctly evaluate the stocks can overcome or underestimate the account in the inventory of the finished goods and create distortion in the balance sheet of the company. The costs of the goods sold are to receive the receipt; Incorrect inventory valuation here disrupts the rude or100 profit of the company for a given period. Companies can choose one of the three methods of inventory valuation above. In most cases, the company must publish any method used by the parties through the financial statements.

Weighted average inventory valuation is most likely completed using an automated computer management system. For example, every time the Company completes or purchases new goods, a cost or invoice report goes to the Company's accounting department. The accounting checks the document for accuracy and validity and then enters the company's software system. Adding more goods and related costs regulates the total amount available for sale and the average price per unit. The weighted average inventory valuation process will then place this price per unit of each item sold from the Tje category of goods.

one of the mostThe benefits for the weighted average inventory is the ability of this valuation method to exterminate the costs of goods sold for a long time. The inventory account also has a less volatile account balance, as the average cost of the inventory increases approximately the same amount for a specific number of goods. This is advantageous because the company can introduce itself as a model of consistency for the external stakeholders, who are most likely to assume that the company does not disturb supplies. However, problems may arise because a significant increase in costs for later inventory purchases will increase cheaper stock costs per new, higher average costs of items available for sale.