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dalzell99
April 30, 2025
Question

Inventory Valuation Questions

  • April 30, 2025
  • 1 reply
  • 0 views

Hello everyone, I'm a web developer who is trying to integrate Quickbooks into our farm management application so I'm not an expert in accounting practises. I have a few questions about the value of purchased inventory.

 

  1. If I buy 5 items at $10 each and then the supplier increases to purchase price to $20, is the current value of those items $50 or $100?
  2. If I then buy 10 items at $20, what's the value now?
  3. I buy 5 apples at $10 each. I add them to Quickbooks. At the same time, I add oranges which are also $10 each but I haven't bought any yet. I then go to the store and buy 5 oranges. I now have $50 of apples and $50 of oranges. A week later, I see that the price has doubled to $20 each so I update the purchase price of both. I then decide to buy 10 more of each. I now have $250 worth of apples and $300 worth of oranges according to Quickbooks. Why are they different?

 

Thanks in advance

    1 reply

    FishingForAnswers
    FishingForAnswers
    April 30, 2025

    Seems like this'll be an interesting topic; bookmarking for later viewing.

     

    Meanwhile, guess I'll add for now...

     

    @dalzell99  While I'm sure one of the others will be along with a more in-depth explanation later, and while there are a number of different ways that inventory can be calculated, the actions of your supplier(s) after the fact will not have an impact on your inventory valuation in and of themselves.

     

    After all, what if you never buy from them after the first transaction? Accountants would be going crazy (well, crazier) if they had to constantly monitor the business practices of everybody their respective business has ever done business with when calculating inventory values.

    D
    dalzell99Author
    April 30, 2025

    This is what confuses me. As you can see in question 3, the current price does matter as the value of the oranges from the first purchase has changed from $50 to $100. So the act of purchasing more oranges then somehow makes the first 5 oranges double in value.

      FishingForAnswers
      FishingForAnswers
      April 30, 2025

      @dalzell99  "A week later, I see that the price has doubled to $20 each so I update the purchase price of both. I then decide to buy 10 more of each."

       

      Well, if you update the historical price in QB, it will naturally update the value of the inventory to match. It's simply multiplying the purchase price by the number of inventory items; A x B = C will change if you increase A.

       

      "I now have $250 worth of apples and $300 worth of oranges according to Quickbooks."

       

      Going out on a limb here, but I would assume that you have two Inventory items for Apples and one Inventory item for Oranges, or two 5 X $10 and 10 X $20 items for Apples and one 15 X $20 item for Oranges. That would math out to the $250.00 and $300.00 valuation for Apples and Oranges, respectively.

       

      @Rainflurry  Going on past topics, I feel like you might enjoy answering this one. I know the basic theory of Inventory, but none of my clients actually use it, so I doubt I'd be the best teacher here.

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