Introduction
...
Moving Average formula :
( ( Current Moving Average Cost * Current Balance Quantity ) + ( New Transaction Price * New Transaction Quantity ) ) / ( Current Balance Quantity + New Transaction Quantity )
Moving Average Cost is calculated by company. Thus, the Moving Average Cost for an item will be the same across the entire company.
...
| Posting Section | GL Code | Debit | Credit |
|---|---|---|---|
| Current Asset | inventory | 55.2 0 | |
| Cost of Goods Sold | inventoryVariance | 55.20 |
Back-dated Transactions
MA is always current.
If you were to create a back-dated GRN / PR, the MA will be recalculated based on current balance quantity and current MA and it will affect only the future transactions.
Similarly, if you were to create a back-dated INV / SR, the cost captured will be current MA, not the MA back in time.
Scenario 1 : back-dated Purchase Return
| Txn Date | Creation Date | Txn | Qty | U.Price | U.Cost | Balance Qty | Balance Value | MA | GP |
| 2015-03-01 | 2015-03-01 | GRN1001 | 200 | 30.00 | 200 | 6,000.00 | 30.00 | ||
| 2015-06-01 | 2015-06-01 | GRN1002 | 200 | 100.00 | 400 | 26,000.00 | 65.00 | ||
| 2015-03-01 | 2015-07-01 | PR1001 (for GRN1001) | 200 | 30.00 | 200 | 20,000.00 | 100.00 | ||
| 2015-08-01 | 2015-08-01 | INV1001 | 200 | 110.00 | 100.00 | 0 | 0.00 | 0.00 | 2,000.00 |
As you can see, the MA shot up to $100 after PR1001. This is an expected behavior because as mentioned MA is always recalculated based on current balance quantity and current MA. In this case, the current balance quantity was 200 and current ma was $65.
Is the cost for INV1001 wrong then? Answer is NO.
If we were to redo the above transactions all over again, where the creation date and transaction date are the same, as shown below, you will notice that the Cost and GP will be the same.
| Txn Date | Creation Date | Txn | Qty | U.Price | U.Cost | Balance Qty | Balance Value | MA | GP |
| 2015-03-01 | 2015-03-01 | GRN1001 | 200 | 30.00 | 200 | 6,000.00 | 30.00 | ||
| 2015-03-01 | 2015-03-01 | PR1001 (for GRN1001) | 200 | 30.00 | 0 | 0.00 | 0.00 | ||
| 2015-06-01 | 2015-06-01 | GRN1002 | 200 | 100.00 | 200 | 20,000.00 | 100.00 | ||
| 2015-08-01 | 2015-08-01 | INV1001 | 200 | 110.00 | 100.00 | -200 | -20,000.00 | 0.00 | 2,000.00 |