Parsimony - How is Valuation Rate Calculated

May 12, 2021

Understanding the value of your inventory is critical. But to do so, you need to know how it works.

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

After all, it is this very question that most users are trying to answer by implementing Parsimony.

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

Fig. 1: Calculating Valuation Rate

Based on this post by Umair (from Frappe Technologies), here is the hierarchy of the calculation:

Note: This is for the Valuation Rate that is displayed in the Stock Ledger within the Accounting Module. 

  1. The valuation rate is calculated when there is a new Stock Transaction like Purchase Receipt, Stock Entry, or Stock Reconciliation. (If the transaction included taxes and other charges, these are included.)
  2. If there aren’t any new/recent transactions (or if those transactions don’t include any costs/values), the valuation is based on a number manually entered in the Item Record. (Located in the first/top section.)
  3. If both of those conditions don’t have a cost, then the system calculates a simple average of all old/previous transactions.
  4. If all of these conditions fail, AND the system needs to record a transaction (for example with a Stock Entry), then you'll see an error saying that you are trying to make an Accounting entry that has no values associated with it.

For those who are doing an implementation, you should “seed” the Item records with a value from a recent purchase. But the system will override that as you make new purchases.

We hope this has offered some clarity with regards to how Valuation Rates are calculated. As always, feel free to reach out if you have more doubts!

Michael Pinkowski
Michael Pinkowski

Parsimony president and co-founder

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