Change Valuation Method
Change Valuation Method
Valuation Method in ERPNext
The Valuation Method specifies how ERPNext will compute the value of stock of items upon making inward/outward transactions. ERPNext has the following methods supported:
FIFO (First In, First Out): Applies the cost of the oldest stock first.
Moving Average: Applies the average cost of all stock available after each inward transaction.
Each of these affects how the value of stock is computed on sales, transfers, issues, and returns.
Changing Valuation Method
Yes — but with restrictions:
You can switch from FIFO → Moving Average
You can't switch from Moving Average → FIFO for products which already have stock transactions entered.
There is this restriction to ensure consistency and accuracy on the stock ledger and valuation reports.
What Happens When You Switch from FIFO to Moving Average?
When you change the valuation method of a product from FIFO to Moving Average:
All new outward transactions (post the change) will be calculated using the Moving Average method for stock value.
If you post any backdated transaction after the method change:
ERPNext reposts all transactions posted after the backdated entry.
These reposted entries adhere to the Moving Average logic.
This can alter the stock valuation of already processed transactions.
Impact on Closing Balance
When reposting occurs as a result of backdated postings, the closing stock value and even profit/loss computations in reports such as:
Stock Ledger
Stock Balance
General Ledger (for stock accounts)
...might get affected.
How Can Unintentional Valuation Changes Be Prevented
To safeguard historical stock data and prevent needless recalculations:
Go to:
Stock → Settings → Stock Preferences
Set a Stock Frozen Upto date.
This Setting will:
Prevent users from adding or changing stock transactions prior to the freeze date.
Avoid retroactive adjustments that might change the current valuation.
For reporting and auditing purposes, lock your stock history.
Example Use Case
You switched an item from FIFO to Moving Average in July. Later, someone adds a backdated Purchase Receipt from May. ERPNext will recalculate all stock movements from May to July using the Moving Average method, potentially changing COGS and stock values.