Zuviq Book
How to Calculate Weighted Average Cost (and Why Your Stock Value Drifts)
The idea in one line
Weighted average cost says: the value of what is on the shelf is the total money spent on that item divided by the total quantity bought. When you sell, the goods leave at that average — not at the last purchase price, and not at the first.
Average cost = total cost of goods available ÷ total quantity available
A worked example
You buy 10 units at 100 each, then 10 more at 140 each. You now hold 20 units and have spent 2,400.
| Step | Quantity | Value | Average |
|---|---|---|---|
| Buy 10 × 100 | 10 | 1,000 | 100.00 |
| Buy 10 × 140 | 20 | 2,400 | 120.00 |
| Sell 5 | 15 | 1,800 | 120.00 |
The sale costs 5 × 120 = 600, so the profit is the selling price minus 600. The shelf still holds 15 units at 120 each. Notice what did not happen: the old units were not re-priced, and the new price did not apply to everything.
Why the value drifts
- Backdated receipts. Entering yesterday's purchase today changes the average for sales that already happened. A system that silently recalculates restates past profit; one that does not restates nothing, and the two reports no longer agree.
- Manual cost on an issue. If a stock-out is typed at a guessed cost, the balance is no longer the sum of its history. The next average inherits the error.
- Negative stock. Selling more than you hold forces the system to invent a cost. When the missing delivery finally arrives, the average jumps.
The three habits that keep it honest
- Receipts set the cost, issues never do. Let the purchase bill or goods receipt carry the price. An issue should read the average, not ask for a number.
- Correct with a document, not an edit. Wrong cost on a receipt? Reverse and re-enter. Editing a posted movement rewrites history that reports already quoted.
- Watch negative stock weekly. It is the cheapest early warning that a delivery was not entered — and the single biggest cause of a stock value that will not reconcile.
Average cost vs FIFO
FIFO assumes the oldest units leave first, so each sale can carry a different cost. Average cost smooths that into one number per item. For a shop with fast-moving parts, average is easier to audit and needs no batch discipline. FIFO is better where the actual batch matters — expiry dates, warranty lots, regulated goods.
Whichever you pick, pick one. Mixing methods between the stock report and the ledger is what makes an accountant ask for a week of your time.
How Zuviq Book does it
Every receipt updates the item's average inside the same transaction that moves the stock. Every issue leaves at the recorded average — the typed cost on an adjustment line is ignored on purpose. The stock report and the inventory account read the same movements, so the two cannot disagree.
The broader stock picture is in the retail brochure. If you are still deciding whether a sheet is enough, read spreadsheet vs business software.
Frequently asked questions
Does a new purchase change the cost of stock already sold?
No. A sale keeps the cost it left at. Only the units still on the shelf move to the new average — that is the whole point of a perpetual average.
What if a purchase was entered with the wrong price?
Reverse the receipt and enter it again with the right price, or post an adjustment. Editing the posted movement is the one option that quietly rewrites reports you have already shared.
Is average cost acceptable for tax?
It is a recognised inventory method and it is consistent, which is what an auditor checks first. Confirm the specific rule with your accountant for your jurisdiction.
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