>Hi,
>Thank you for reply.
>
>>>>In our inventory control system, the Average Cost is adjusted when an item is received into inventory. Other transactions such as issues, transfers and Adjustments from Physical Inventory use the average cost but do not change the average cost.
>
>As you mentioned, Stock Transfer from other outlet will not adjust the weighted average cost? If the source of stock of particular outlet is based on stock transfer (All purchases done by HQ, and transfer them from HQ to outlet), then what is average cost will always ZERO?
>

That depends. The inventory had to be purchased (or built from other inventory) at some time. So the cost was established when the produvt entered the inventory.

If your inventory locations maintain their own receiving etc etc then yes, the average cost could be different betwen the locations. But idf that is the case, then transfers betwen inventories would involve two transactions:
1. issue from inventory 1 (no change to average cost 1) 2. Receive in inventory 2. The average cose in inventory 2 would change unless the cost of the received product is exactly the same as the current average cost.

In our case, even though there are several inventory locations, the receiving is done centrally and the accounting is done centrally so the average cost of a product is the same regardless of location. Ergo, transfers between locations do not affect the average cost.

>>>>You will probably also need a utility option that allows the user to 'adjust' the average cost when, for whatever reason, it gets out of whack. Such an adjustment must be accompanied by an entry to the general ledger.
>We have stock adjustment module in system, but not to adjust average cost. Could you please give me more info about it? Any resources could I refer to?
>

Let me preface my remarks (should have done it earlier < s >) that although I have an MBA and have taken accounting courses I am not a CPA or even an accountant. All I know has been learned from others (CPA's included) So I may have misinterpreted some issues.

At any rate...

You will need to be able to adjust your inventory in two ways.

First, the inventory counts will not always agree with a physical inventory count. That happens!! Product is lost or stolen , sometimes sales or receivers are improperly posted etc etc etc. That is why Physical Inventories shoud be done. When that happens, you need to adjust your count and account for it properly. Example, computer says you have 50 with an average cost of $10. But you count them and there are only 45. So you lost 5. Issue an adjustment transaction that reduces inventory by 5. That transaction also Debits an Inventory Adjustment account 5x10 = $50 and Credits Inventory 5x10 = $50. Your expenses just went UP by $50 and your Assets just declined by $50. Note that the average cost of the product did not change.

Second, it is possible (but should not happen) that the current average cost of a product is incorrect. Then it should be adjusted. Count does not change. Instead the average cost is changed and accounted for. Example, you have 1000 Product C current average cost is $5 but should be $6. Debit Inventory (6-5)x1000 = $1000. Credit Inventory Adjustment (or whatever expense account) by the same amount.

HTH,

Ken