When using Intuit Enterprise Suite (IES), you now have two methods with which to value your inventory. As with QuickBooks Online SKUs, IES offers First In, First Out (FIFO) inventory valuation. But now, you can elect to use Moving Average Cost (MAC), which is more closely related to the 'Average Cost' method used in QuickBooks Desktop products, such as QuickBooks (Desktop) Enterprise.
Both methods have varying benefits for purposes of accounting and tax implications related to inventory valuation. Users should always determine which method will work best for their requirements, in conjunction with their tax or accounting professional(s). Costing methods must be understood and used correctly to ensure accurate inventory reporting and effective management of stock levels in line with your budgetary requirements.
Understanding the Two Options
It is critical to understand the two inventory valuation options before signing up for Intuit Enterprise Suite or adding inventory to any existing IES subscription(s). The reason is simple: you cannot change the Inventory Valuation method after it is initially configured.
FIFO Inventory Valuation
First In, First Out (FIFO) is a concept used by businesses that track inventory. As the name implies, QuickBooks Online will always consider the first units purchased (First In) to be the first units sold (First Out) and will adjust your assets and Cost of Goods Sold (COGS) accordingly whenever sales of inventory items are entered.
When switching to Intuit Enterprise Suite from any QuickBooks Online version (like QBO Plus or QBO Advanced), users may find that the FIFO inventory valuation method is the best option, as it aligns with their existing QBO file inventory valuation.
MAC Inventory Valuation
Moving Average Cost, also known as Weighted Average, calculates an average cost for all units of an item in inventory. This average updates after every purchase. When units are sold, they are valued at the most recently calculated average cost.
MAC doesn't track costs based on when the item arrived, like FIFO or LIFO. Instead, it uses the exact average cost for every unit you have for sale. This balances out the effect of price changes since it doesn't favor the price of the first or last items you bought.
Intuit Enterprise Suite calculated MAC using a formula of: New Moving Average Cost = (Total Cost of Goods Available Before Purchase + Cost of New Purchase) / (Total Units Available Before Purchase + Units in New Purchase)
When migrating to Intuit Enterprise Suite from QuickBooks Desktop versions (like QuickBooks Desktop Enterprise), users may find that the IES Moving Average Cost (MAC) inventory valuation method more closely matches their QBD file inventory valuation.
For more information and examples of how Intuit Enterprise Suite computes each inventory value, see this IES Help Article.
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