How is Valuation Rate Calculated

Understanding the value of your inventory is critical. To do that, you need to know how the number is built.

Valuation Rate is a field in the top section of every Item record. When you set up a new Item, it feels like the first stumbling block. You end up asking, "Where am I going to find that?"

After all, this is the very question most users are trying to answer when they implement an ERP like Parsimony.

The good news is that there is a clear and methodical answer.

The calculation hierarchy

Based on this post by Umair of Frappe Technologies, here is the order the system follows.

Note: this applies to the Valuation Rate displayed in the Stock Ledger within the Accounting module.

1. The valuation rate is calculated when there is a new stock transaction such as a Purchase Receipt, Stock Entry, or Stock Reconciliation. If the transaction included taxes and other charges, those are included.
2. If there are no new or recent transactions, or those transactions carry no cost or value, the valuation is based on the number entered manually in the Item record, in the first section at the top.
3. If neither of those has a cost, the system calculates a simple average of all previous transactions.
4. If all of these fail and the system still needs to record a transaction (for example, a Stock Entry), you will see an error saying you are trying to make an accounting entry with no values attached.

What to do during an implementation

If you are doing an implementation, seed each Item record with a value from a recent purchase. The system will override that figure as you make new purchases.

We hope this offers some clarity on how Valuation Rates are calculated. If you still have questions, reach out.