Stock Costing Method

Software: QuickBooks accounting software

QuickBooks Desktop software is using the average costing method for stock.

How it works?

Assuming you have 10 units of item A at $10 each. Then, you purchased 10 more units of item A at $8 each. Now, the cost per unit is at $9.

10 units at $10 = $100

10 units at $8 = $80

Total stock value = $100 + $80 = $180

Total stock quantity = 10 + 10 = 20

Average Cost per unit = 180 / 20 = $9 per unit

If you create a sales invoice for 12 units of item A at $$20 per unit, the double entry will be:

Debit Accounts Receivable account: $240 (12 x $20)

Credit Sales account: $240

Debit Cost of Goods Sold account: $108 (12 x $9)

Credit Stock Asset account: $108

How does the Average costing different from a FIFO (First in First Out) costing method?

When you create a sales invoice for 12 units of item A at $20 per unit, the double entry for FIFO method will be:

Debit Accounts Receivable account: $240 (12 x $20)

Credit Sales account: $240

Debit Cost of Goods Sold account: $100 (10 x $10)

Credit Stock Asset account: $100

Debit Cost of Goods Sold account: $16 (2 x $8)

Credit Stock Asset account: $16

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