Every business has to keep track of their expenses as well as their income. This is not always an easy task to do, especially when there is inventory involved. Most often, the financial statements are not available until the end of the month. When using a company such as SkuVault, keeping track of your running selling cost in real time is quick and easy. You will know exactly what your cost averaging is at any given time.
What is Cost Averaging?
It’s a method used to keep an accounting record of the cost of your goods sold. Your cost is what you have paid to your suppliers for each of your products. To cost average an item, this cost that you have paid for an item is deducted from the price you have sold it for. Then this cost is averaged out over the quantity of those same items that you have purchased. SkuVault uses the weighted average method to do this.
How is the Cost Average Calculated?
The cost of goods that are on hand for sale is divided by the number of units in inventory available for sale. This gives the weighted cost for each unit. This figure can then be used to determine a cost for the ending inventory, as well as the cost of goods sold.
When there are only a few items being sold, completing the cost average manually is not too difficult, but still time consuming. When there are many goods to be sold, it is difficult to determine an actual picture of true costs because of the amount of time and calculation it takes.
SkuVault uses software that will perform these calculations automatically for each purchase order. These calculations then present an accurate picture of the cost of the goods sold over a period of time.
As a business owner your inventory is part of your assets. You should know what your assets are accurately worth at any given time. With SkuVault offering the Cost Averaging calculations, you have an accurate account of what your inventory is worth on any given day.
There are many reasons that you may need to know these figures. They can help you make a decision as to whether you want to shop around for lower cost items. They can be utilized to show as part of your assets if you are going after financing. They can help you when making several various types of business decisions.
If you were to calculate these figures manually to obtain the proper accounting figures, it would take time and money to hire someone to do the actual calculating for you. By having access to this information through SkuVault, you don’t have to go through this process or worry about human error