What is a stock?
How to value and depreciate inventory?
How to inventory stocks?
What are the stock valuation methods?
The competitiveness of the company can be particularly affected by its inventory management, reason enough to pay great attention to it.
What is a stock?
Inventory refers to all items in a business that have not yet been consumed or sold. A company can have different types of stocks such as stocks of raw materials, stocks of work in progress, stocks of finished products, defective products that need to be repaired, packaging, etc.
Stock inventory is necessary for business operations. It allows the company to obtain reliable information on the physical reality of its stocks.
Inventory management ?
Inventory management is the set of rules and procedures used by a company to control its inventory and optimize it with the aim of optimizing its operations.
Thus, the company always seeks to achieve a good balance between a low controlled storage cost and product availability to meet the demands of its customers.
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How to value inventory?
Inventory valuation methods:
Inventory valuation methods are derived from general accounting principles, in particular:
The principle of continuity of operation: insofar as the life of a company is supposed to continue over time, the company's assets must be valued at the end of the financial year according to the methods accepted by accounting standards.
The principle of historical cost: when items enter the portfolio, they must be valued either at their acquisition cost or at their production cost.
The principle of prudence: on the inventory date, the company must assess all events likely to reduce expenses or income.
Valuation of incoming stocks:
The valuation of stock entries is carried out:
At purchase cost for materials, supplies and merchandise
At production cost for finished products and finished semis
Valuation of outgoing stocks
There are several methods for valuing outputs. We detail below those authorized by Moroccan accounting standards:
1. Weighted average cost methods:
The weighted average unit cost method consists in valuing stock exits at a unit value equal to the average between the products stored and the stock entries.
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The valuation of exits at the weighted average unit cost contains two variants: (i) the weighted average unit cost at the end of the period and (ii) the weighted average unit cost after each entry.
1.1 Weighted average unit cost at the end of the period:
The first variant includes the end-of-period valuation The cost to leave the store for each material is Weighted average of input costs, including initial inventory costs.
Weighted average unit cost at the end of the period
1.2 Weighted average unit cost after each entry
According to the new Moroccan chart of accounts; This second variant consists in determining the weighted average unit cost after each entry by the “quotient of:
The chart of accounts indicates that this calculation is made for each new entry, and the unit cost thus determined is used to value the exits until the next entry.
Ending inventory is valued at last entry cost.
2. Batch Exhaustion Methods (FIFO):
The “first-in, first-out” method or “batch exhaustion” method is known by the Anglo-Saxon term first-in, first-out (FIFO).
It considers that the batches of materials or products leave the store in chronological order, that is to say that the oldest batch leaves the first. The value of the output is at the expense of the oldest input. At the end of the period, inventory on hand is valued at last recorded cost.
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