What is the Average Cost Method?

For any given transaction, the warehouse value is divided by the warehouse quantity on that date to determine the unit cost. Check out this article for a link to our docs page about Average cost.

Acctivate supports a variety of methods for calculating Inventory Valuation and Cost of Goods Sold.  The most popular costing method is Average Cost.

Acctivate is a perpetual inventory system using a continuous calculation of average cost.  The cost for each transaction is calculated using a "running total" from all transactions prior to and including the specific transaction date.  Therefore, multiple transactions in a given accounting period may be calculated at different average unit costs.

This approach is far superior to the simple Weighted Average Cost or Moving-Average Cost methods, in which all transactions for a given period are calculated at the same cost per unit.

The Transaction Date is very important when determining the average cost.  There is even a formula for processing transactions on the same date.

For a closer look at the Average Cost method, please refer to our docs page.