Odoo Inventory Valuation: FIFO, AVCO & Standard Cost Guide

Why Inventory Valuation Matters

Inventory valuation determines the cost of goods on your balance sheet and the COGS on your P&L. The method you choose (FIFO, AVCO, Standard) affects profitability reporting, tax liability, and financial statement accuracy.

Valuation Methods

Configuration

# Settings → Inventory → Inventory Valuation
# Product Category → set Costing Method:

# Category: Raw Materials
# Costing Method: FIFO
# Inventory Valuation: Automated (journal entries auto-created)

# Category: Finished Goods
# Costing Method: Standard Cost
# Inventory Valuation: Automated

# Category: Trading Goods
# Costing Method: Average Cost (AVCO)
# Inventory Valuation: Automated

FIFO Example

# Purchase 1: 100 widgets at $10/unit
# Purchase 2: 100 widgets at $12/unit
# Total stock: 200 widgets

# Sell 50 widgets:
# FIFO: cost = 50 × $10 = $500 (oldest first)
# COGS on P&L: $500
# Remaining inventory: 50 × $10 + 100 × $12 = $1,700

# Sell 80 more:
# FIFO: 50 × $10 + 30 × $12 = $860
# Remaining: 70 × $12 = $840

AVCO Example

# Purchase 1: 100 widgets at $10/unit
# Purchase 2: 100 widgets at $12/unit
# Average cost: (100×$10 + 100×$12) / 200 = $11/unit

# Sell 50 widgets:
# AVCO: cost = 50 × $11 = $550
# Remaining: 150 × $11 = $1,650

# New purchase: 100 at $15
# New average: (150×$11 + 100×$15) / 250 = $12.60
# Recalculated per unit

Standard Cost

# Product → set Standard Price: $10/unit
# All receipts and deliveries use $10

# If actual purchase is $12:
# Dr. Stock Valuation: $10 (standard)
# Dr. Price Difference: $2 (variance)
# Cr. Accounts Payable: $12 (actual)

# Variance accounts track the difference
# Standard cost updated periodically (quarterly/annually)

Automated vs Manual Valuation

# Automated (perpetual):
# Every stock move creates accounting journal entries
# Real-time inventory value on balance sheet
# Recommended for most businesses

# Manual (periodic):
# No automatic journal entries from stock moves
# Inventory value updated manually at period end
# Physical count → journal entry for valuation adjustment
# Simpler but less accurate

Accounting Entries

# Automated valuation — what Odoo posts:

# Receipt (purchase):
# Dr. Stock Valuation (asset)     $1,000
# Cr. Stock Input (interim)       $1,000

# Vendor Bill:
# Dr. Stock Input (interim)       $1,000
# Cr. Accounts Payable            $1,000

# Delivery (sale):
# Dr. Cost of Goods Sold (expense) $1,000
# Cr. Stock Valuation (asset)      $1,000

# Customer Invoice:
# Dr. Accounts Receivable          $1,500
# Cr. Revenue                      $1,500

Common Issues

• Negative inventory: processing delivery without receipt → wrong cost allocation
• Standard cost outdated: standard price not updated after cost changes
• Valuation mismatch: stock value ≠ accounting value (check interim accounts)
• FIFO with returns: returned items re-enter at original cost, not current price

DeployMonkey

DeployMonkey's AI agent configures inventory valuation — selecting the right method per product category, setting up accounting accounts, and monitoring for valuation discrepancies.