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