## Understanding the Advanced Stock Valuation System

This chapter discusses:

- The Advanced Stock Valuation system.

- System integration.

- System flow.

- Business considerations.

- Tables used in Advanced Stock Valuation.

### The Advanced Stock Valuation System

You use the JD Edwards EnterpriseOne Advanced Stock Valuation system to determine the current value of a company's stock. Stock is also referred to as inventory. Stock value is based on the total cost of the stock owned by a company at a specific time. The value of stock can vary, depending on the different methods used to calculate the total cost and the method used to value the stock.

You can value stock using one of these methods:

- Replacement cost.

- Average weighted cost.

- FIFO (First In, First Out).

- LIFO (Last In, First Out).

### System Integration

This table describes the systems with which the JD Edwards EnterpriseOne Advanced Stock Valuation system integrates:

System | Description
JD Edwards EnterpriseOne Procurement | The JD Edwards EnterpriseOne Procurement system from Oracle retrieves item costs based on the purchasing costing method that is defined for each item. When you receive a voucher for the item, the system updates the general ledger.
JD Edwards EnterpriseOne Inventory Management | The JD Edwards EnterpriseOne Inventory Management system stores item information that all of the other systems can use.
JD Edwards EnterpriseOne Bulk Stock Management | The JD Edwards EnterpriseOne Bulk Stock Management system from Oracle controls the storage, measurement, and movement of dynamic bulk inventory. This system lets you complete transactions that move bulk inventory. In addition, it accurately calculates product gains and losses for each bulk stock transaction.
JD Edwards EnterpriseOne Sales Order Management | The JD Edwards EnterpriseOne Sales Order Management system from Oracle retrieves item prices and costs from the JD Edwards EnterpriseOne Inventory Management system for sales orders. The system updates the general ledger and creates accounts receivable entries to record inventory, cost of goods sold, revenue, and tax transactions for use in cash receipts processing.
JD Edwards EnterpriseOne Agreement Management | The JD Edwards EnterpriseOne Agreement Management system from Oracle enables you to manage contracts with business partners. You can accurately accommodate loans, borrows, and exchanges, and ensure that the stock involved is valued correctly.
JD Edwards EnterpriseOne Transportation Management | The JD Edwards EnterpriseOne Transportation Management system from Oracle confirms the release of stock from the inventory and records the amount of stock in transit, thereby accurately reflecting the actual stock to be valued at the end of a period.

The systems that integrate with JD Edwards EnterpriseOne Advanced Stock Valuation store all inventory activity in a central table, the Item Ledger File table (F4111), which is known as the Cardex. The Cardex is the central repository of all inventory and cost movements. Programs from other systems that handle inventory create records in this table whenever inventory and cost are affected. The JD Edwards EnterpriseOne Advanced Stock Valuation system uses inventory information from the Cardex to ensure that the correct inventory is valued.

### System Flow

The JD Edwards EnterpriseOne Advanced Stock Valuation system uses the F4111 table as the base for its processing. The system extracts the inventory activities from the Cardex by document number, type, and item. Based on the valuation methods, the system then determines the various balances and updates the valuation files. When you post the valuation, the system updates the general ledger and the Valuation Period Table (F39061).

This table describes the tasks performed by the system:

Table | Description
Item Ledger File table (F4111) | The system retrieves records by specific document number, document type, and item for a given date range.
Item Pool Valuation Master table (F3904) | The system retrieves the item or pool valuation method and unit of measure.
Valuation Method Master table (F3905) | The system retrieves attributes of the valuation method.
Valuation Period Table (F39061) | The system retrieves the closing balance and other necessary information from the previous period's record.
Period Build report (R39120) | This batch application: Updates the Historical Valuation Period Detail Table (F390619) with current information. Builds layers in detail or summary, based on the valuation method, in the Valuation Layers Table (F39062). Accumulates totals by document type to the Valuation Document Summary Table (F39064). Writes and updates current information to the Period Additional Quantity Table (F39063).
Company G/L Update Method Master table (F39042) | The system retrieves the valuation method that is used to update the Account Ledger (F0911) table.
Valuation Layers Table (F39062) | The system updates layer information and combines layers at year-end.
General Ledger Post report (R09801) | Run this batch application to update the general ledger from journal entries.
Stock Valuation GL Update report (R39130) | This batch application: Updates the general ledger based on the valuation method that you defined. Updates the F39061 table, as posted.

### Business Considerations

This section discusses:

- General considerations

- Inventory identification

- Cost identification

- Stock valuation methods

- Dual currency

#### General Considerations

System integrations provide the flexibility needed to accommodate the many stock valuation methods throughout the distribution industries. Additional features support unique considerations of energy and chemical businesses and the demands placed on companies that must meet the requirements of many national and local regulatory agencies.

Stock valuation is a vital component of all distribution and manufacturing industries. It provides the information that you need for reporting purposes and to evaluate profit margins.

You calculate stock value on a periodic schedule. In general monthly, quarterly, and yearly. Business and government requirements determine when a company completes the reporting to:

- Measure and manage stock levels and related cash flow.

- Comply with the accounting standards that require companies to provide a true and fair value of the company's financial performance and capital used.

Stock valuation reporting is necessary for corporate, management, and statutory purposes. Corporate reporting analyzes the value of the company's stock and the cost of the stock that was sold (cost of goods sold). Management reporting verifies that the company's storage and handling methods comply with the laws enforced by various governmental organizations.

#### Inventory Identification

To value the stock, you must be able to identify the items in the inventory. Possession of legal title of inventory is a fundamental criterion for determining whether items should be reflected in the inventory of a seller or a buyer. However, possession of title does not necessarily coincide with actual physical possession of the goods. For example, title to goods that are in the possession of a common carrier and in transit from the seller to the buyer should remain in the inventory of the seller until delivered. The integration of the various systems ensures that you can identify the entire inventory.

Many companies consolidate items into groups of similar items for stock valuation purposes. This process is called pooling or product consolidation. When you pool items, you can apply a single purchase price and associated costs to all items in that pool.

Whether each item is valued separately or as a pool varies from industry to industry. The JD Edwards EnterpriseOne Advanced Stock Valuation system enables you to value by individual items, pools, or both.

Many companies maintain contracts with other companies to store bulk product. Therefore, bulk stock might be commingled and belong to more than one owner. The JD Edwards EnterpriseOne Advanced Stock Valuation system enables you to exclude commingled stock from the valuation.

#### Cost Identification

You generally post inventory at an amount that reflects the price paid plus all costs incurred to bring the items to the location and to make them salable.

In some distribution industries, especially energy and chemical businesses, the actual purchase cost from a supplier might not be known at the time that the items are received into the inventory or only become known after you issue a voucher for payment.

The JD Edwards EnterpriseOne system enables you to update, or recost, these open receipts and paid vouchers, which ensures that the value of the stock is represented by the actual cost.

#### Stock Valuation Methods

Determining which method is used to assign inventory costs to the Cost of Goods Sold (COGS) account in the income statement is a major management decision. Inventory items that are in a company's possession and available for sale throughout a period must acquire a period end status of either Sold or On hand. If the items have been sold, you must reflect the costs assigned to those goods on the period's income statement. If the items remain unsold, you must be able to determine which portion of the cost of goods available for sale is to be assigned to the income statement, and which portion is to be assigned to the balance sheet.

Inventory items physically move out of the business when they are sold. Similarly, the costs assigned to those items must move from the balance sheet to the income statement, where they are no longer reflected as an available resource but as an operating expense for that period.

The JD Edwards EnterpriseOne Advanced Stock Valuation system provides these valuation methods for all items in the inventory:

- First In, First Out (FIFO).

- Last In, First Out (LIFO).

- Weighted Average Cost.

- Replacement/Current Cost.

In this documentation, we refer to these methods as stock valuation methods to differentiate between the cost of an item and its current value. Cost refers to the cost of an item so that you can determine its selling value. Valuation determines the value of any item that is currently in the inventory for reporting and financial purposes.

#### Dual Currency

Businesses operating in an inflationary market need to be able to maintain a set of books in two currencies: the local currency and a stable currency, commonly U.S. dollars. The JD Edwards EnterpriseOne Advanced Stock Valuation system enables a business to value inventory based on a valuation method, such as LIFO, FIFO, and replacement or current cost. With the Dual Currency feature, a business can use a second ledger type to adjust its inventory in both the domestic and the stable currency.

### Tables Used in Advanced Stock Valuation

This table identifies the primary JD Edwards EnterpriseOne Advanced Stock Valuation tables and their contents:

Table | Description
Item Pool Valuation Master table (F3904) | Contains information for these valuation methods: Item number or pool. Valuation method. User identification and update information.
Valuation Category Master table (F39041) | Contains information for these valuation methods: Unit of measure GL class
Company G/L Update Method Master table (F39042) | Contains information for these valuation methods: GL update method Default branch/plant
Valuation Method Master table (F3905) | Contains information for all valuation methods that you define for the company.
Item Pool Valuation Cost Master table (F3908) | Maintains the replacement cost of the items and pools.
G/L Adjustment Table (F3910) | Displays the adjustments made to the GL table.
Valuation Period Table (F39061) | Contains these stock valuation methods for the period: Opening quantities and amounts. Period incoming quantities and amounts. Period outgoing quantities and amounts. Closing quantities and amounts. Inventory and COGS adjustment. LIFO adjustment and adjustment cost. General ledger classification. Posted and closed information. User identification and update. information.
Valuation Layers Table (F39062) | Contains all of the information for the historical layers for all stock valuation methods that you define for the company, including: Receipt information. Current quantity, amount, and allocations. Last allocation amount, quantity, and date. User identification and update information.
Period Additional Quantity Table (F39063) | Contains the valuation information for those methods that you defined to include not-in-stock inventory, in-transit inventory, or loan and borrow accommodations.
Valuation Document Summary Table (F39064) | Contains the cost information summarized by document type.

See Also

Form Used to Define Valuation Methods