Here Are The Average Recording Method in Accounting: Explanation and Application

kelolalaut.com Definition of the Average Method

The average recording method is an approach used in accounting to calculate inventory value and cost of goods sold (COGS). This method calculates the average cost per unit of goods available during a specific period. The average method is considered simple and can reduce the impact of price fluctuations on inventory value.

Types of Average Recording Methods

There are two common types of average recording methods used in accounting practice:

1. Simple Average Method: This method calculates the average cost per unit by summing up all unit prices from each purchase transaction and then dividing by the number of transactions.
2. Weighted Average Method: This method considers the quantity of units purchased when calculating the average cost per unit. The total purchase cost is divided by the total units of goods available.

Example of Applying the Average Method

Suppose a company makes the following inventory purchase transactions:

• First purchase: 100 units at Rp10,000 per unit.
• Second purchase: 200 units at Rp12,000 per unit.

Advantages and Disadvantages of the Average Method

Advantages:

• Easy to calculate and apply.
• Minimizes the impact of price fluctuations on inventory value.
• Provides consistency in calculating inventory costs.

Disadvantages:

• Does not reflect the actual price at the time of the latest purchase or significant price changes.
• Average calculations may be misleading if there are large price variations.

Application in Accounting

The average method is often used by companies with homogeneous inventory, such as raw materials, chemicals, or merchandise with similar characteristics. Additionally, this method is applied by companies that prefer a straightforward approach to recording inventory. In financial statements, the average method provides a stable depiction of inventory value, which can help stakeholders make decisions without being influenced by extreme price volatility.

Conclusion

The average recording method is a practical and efficient method for recording inventory values and calculating COGS. By understanding its types, companies can choose the method that best suits their needs and the characteristics of their inventory.

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