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In the area of the Finance continuous inventory management is an essential component in SAP Business One. SAP B1, which is characterised by a wide range of financial accounting functions, also offers specific mechanisms for perpetual and nonperpetual inventory. This paper looks at how these processes are implemented in SAP Business One and the impact they can have on the work of financial accountants.
Inventory valuation methods in SAP Business One
In SAP Business One you can choose between three different methods for inventory valuation: Standard Price, FIFO (First-In-First-Out) and GLD (Moving Average). Each of these methods has its own characteristics and is therefore suitable for different business scenarios.
Standard price: Consistency in controlling
With the standard price as the valuation method, you set a fixed price for a specific time period. All goods movements of an item are constantly valued at the same price during this time period. The clear advantage of this method is the possibility of consistent controlling of the production process.
FIFO: Ideal for seasonal goods
FIFO stands for First-In-First-Out. With this valuation method, each purchase price is accounted for individually. When a sale takes place, the oldest purchase price is used. In this respect, this method is particularly suitable for companies that trade in seasonal goods, as here the oldest stocks are reduced first.
Moving average (GLD): Flexibility in case of price deviations
The moving average (GLD) calculates a new average material price after each goods receipt and invoice receipt. This means that in the event of deviations in material receipts, for example in production, the subsequent material issues are valued with a more up-to-date price. This method offers flexibility and can be particularly advantageous in dynamic market environments.
Continuous inventory management and its advantages in SAP Business One
So what are the differences and thus the effects of the inventory management variants in SAP Business One? In perpetual inventory, inventory entries are reflected in the form of financial transactions in the financial accounting system. With this method, inventory postings thus affect both stock levels and stock value, and in the general ledger, automatic journal entries created for the changes in inventory value.
Calculation of gross profit: Continuous and non-continuous inventory management
By using perpetual inventory, SAP Business One calculates an item price for each stock item. Based on this item price, the gross profit of each item can be calculated. A/R Invoice can be determined. If perpetual inventory is not active, the gross profit can be calculated on the basis of price lists or the last determined purchase price.
Decision criteria for inventory management in SAP Business One
Continuous and non-continuous inventory management in SAP Business One provide different mechanisms for recording and valuing inventory changes. The choice between these methods and the associated accounting discipline thus have a direct impact on the accuracy of inventory valuation, the calculation of the Gross profit and the traceability of the entries. Careful consideration of the advantages and disadvantages of each method and, if necessary, consultation with a tax advisor are essential in order to be able to fully exploit the advantages of the respective inventory management.