Daniel,
I understand the point you're trying to make.
An accountant working for a user of OFBiz will want to verify OFBiz's output against manual
calculations. Our accountants do that all the time here where I work. So, if OFBiz is calculating
average cost one way, and the accountant is calculating average cost another way, then there may be
a discrepency. The accountant is going to question the accuracy of the accounting software.
All I'm suggesting is this: if the subject of this thread is "Accounting Average Cost Algorithm"
and we're really discussing an *algorithm* - then let's use a standard accounting algorithm. If the
issue is problems that arise when databases round numbers, then that's a different subject. In that
case we should be discussing "Errors Caused by Rounding In Databases."
-Adrian
Daniel Kunkel wrote:
Hi
Adrian, I'm starting to wonder if the point I'm trying to make is being
missed.
Yes, I do understand that there are reasons accountants would want to
use another form of cost tracking, most commonly lifo and fifo.
The algorithm I'm suggesting only pertains to the "weighted average"
when the business decides they want to use average cost accounting.
And, for many products, where the cost per unit works out to an exact
cent, the algorithm will work exactly as you would expect.
Where this algorithm is different is in how it handles when the average
cost doesn't work out to the exact penny.
For example, you buy 1000 units for $ 5,788.54, at an average of $
5.78854 each.
As you sell the units, you need to move the cost of each from an
inventory account to an cogs expense account. The straight forward way
to handle this moves $5.79 from inventory to expense for every unit
assuming every unit is calculated independently and you apply simple
rounding. By the time you are sold out, you'll notice the total expenses
for this item add up to $ 5.790.
The algorithm I'm suggesting will vary the costs of goods between $ 5.78
and $ 5.79 in an such a way such that total expenses will exactly equal
the total investment when you are completely sold out.
I believe it is possible to achieve the same result via the more common
method of storing 5.78854 in the database, but then you have complicated
issues with floating point resolution, rounding, adjustments, and have a
hard time making accounts exactly match.
Daniel
Thu, 2008-01-10 at 13:18 -0800, Adrian Crum wrote:
David E Jones wrote:
With modern systems, especially highly integrated ones like OFBiz, we
can do crazy things to get actual inventory costs and so on, but for
COGS calculations companies often don't want that. Because goods
purchased for resale vary in price and such, and there is often a
desire to even out such costs over a longer period, they actually
prefer to use averages and such because they are allowed in GAAP and
they can make the company's books look better.
The pages I posted to the Wiki have an example of what you described - using different costing
methods to achive a desired result.
