Compute the inventory valuation and cost of goods sold using standard costing

The manual inventory valuation method suggest that the valuation of an inventory has to be manage manually in financial accounting. The periodic journal entry has to be passed on regular internal so keep updated the valuation in balance sheet and cost of goods sold in profit and loss account.

On every regular internal an accounting entry has to be passed as below:

Description	Debit	Credit
Inventory Valuation		800
Cost of Goods Sold	800

To compute the cost of goods sold use the below formula

COGS = Inventory Valuation as per Balance sheet - Inventory Valuation as per Inventory

Product Cost price

As your inventory costing method is standards, you are allowed to change the cost price of the product, assumed that you increase the cost price.

Tip

Make sure you change the cost price on the product once your valuation is equal for inventory and balance sheet, else you may have a wrong cost of goods sold entry.

When you see a COGS is having a negative value it means that your value of the inventory increased in warehouse this should be reflect in the balance sheet too.

To increase the value in balance sheet you have to pass below journal entry

Description	Debit	Credit
Inventory Valuation	800
Inventory Valuation Difference		800

Or, when you see a COGS is having a positive value it means that your value of the inventory decreased in warehouse and this should be reflect in the balance sheet too.

To decrease the value in balance sheet you have to pass below journal entry

Description	Debit	Credit
Inventory Valuation		800
Inventory Valuation Difference	800

Video

Access the video at https://www.youtube.com/watch?v=pVsdiEl6OJw

See also

• Compute the inventory valuation and cost of goods sold using fifo costing method

• Compute the inventory valuation and cost of goods sold using average costing method