Removal strategy : FIFO in Odoo 17 Inventory | How FIFO works in Odoo 17 Inventory
3In Odoo, FIFO (First In, First Out) refers to a method of inventory valuation and cost tracking. The FIFO method assumes that the first items added to the inventory are the first ones sold or used in production. This means that the cost of goods sold (COGS) and the value of remaining inventory are calculated based on the cost of the earliest acquired items.
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Here's how FIFO works in Odoo:
Inventory Receipts: When products are received into the inventory, the system records the cost of each item. The cost is typically based on the purchase price or production cost at the time of receipt. #odoo17
Sales or Usage: When products are sold or used in production, Odoo assigns the cost of the oldest items in the inventory to the corresponding sales order or production order. This ensures that the cost of goods sold reflects the cost of the earliest acquired items.
Cost Calculation: The cost of goods sold (COGS) is calculated based on the cost of the oldest items, while the remaining inventory is valued at the cost of the most recently acquired items.
FIFO (First In, First Out) is used in Odoo, as well as in many other inventory management systems, for several reasons:
Accurate Costing: FIFO ensures that the cost of goods sold (COGS) reflects the actual cost of the earliest acquired items in the inventory. This provides a more accurate representation of the expenses associated with selling or using products.
Compliance with Accounting Standards: In many jurisdictions, FIFO is a widely accepted and recommended method for inventory valuation according to accounting standards. It aligns with the principle of matching costs with revenues, which is fundamental to accurate financial reporting.
Realistic Profit Margins: By using FIFO, businesses can calculate profit margins based on the actual cost of goods sold. This helps in making informed pricing decisions and understanding the true profitability of products.
Reduced Tax Impact: FIFO can have tax advantages in certain situations. By using the cost of the oldest items for COGS, businesses may report lower profits, resulting in lower taxable income and reduced tax liabilities.
Simplicity and Consistency: FIFO is relatively straightforward to implement and understand. It provides a consistent and logical approach to valuing inventory, making it easier for businesses to manage their finances and track costs over time.
Matching Revenue and Costs: FIFO ensures that the revenue generated from the sale of goods is matched with the corresponding costs, promoting better financial transparency and accountability.
Accurate Inventory Valuation: FIFO provides a more accurate representation of the value of the remaining inventory on the balance sheet, as it reflects the cost of the most recently acquired items.
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