Inventory balance sheet valuation is crucial for businesses managing inventory, as it reveals the value of goods in stock. SAP S/4HANA Cloud, public cloud offers tools and features that allow organizations to perform inventory balance sheet valuation efficiently. In this blog, we will discuss how users can leverage SAP S/4HANA Cloud to conduct inventory balance sheet valuation using the FIFO (First In, First Out) method as a sample.
The primary goal of inventory balance sheet valuation is to determine the value of a company's inventory at a specific point in time. This valuation helps organizations make informed decisions about purchasing, production, and sales activities. Moreover, it plays a vital role in accurate financial statement reporting, which is essential for compliance, taxation, and auditing purposes.
To better understand the FIFO method, let's consider a simple example. Imagine a grocery store that sells apples. The store receives shipments of apples at different times and prices:
1. January 1: 100 apples at $1 each
2. January 15: 150 apples at $1.10 each
3. February 1: 200 apples at $1.20 each
Using the FIFO method, the store assumes that the apples sold first come from the oldest stock, i.e., the January 1 shipment. Suppose the store sells 220 apples between January 1 and February 15. Here's how the inventory would be valued:
1. The first 100 apples sold (from the January 1 shipment) would be valued at $1 each, totaling $100.
2. The next 120 apples sold (from the January 15 shipment) would be valued at $1.10 each, totaling $132.
3. The remaining 30 apples from the January 15 shipment would be valued at $1.10 each, totaling $33.
4. The 200 apples from the February 1 shipment would still be in stock, valued at $1.20 each, totaling $240.
Using the FIFO method, the total value of the remaining inventory (230 apples) would be $273 ($33 from the January 15 shipment and $240 from the February 1 shipment).
To use the FIFO valuation method in SAP S/4HANA Cloud, follow these steps:
1. Flagging Materials for FIFO Valuation:
First, identify the materials relevant to FIFO valuation. Open the Accounting view of the material master record and select the LIFO/FIFO-relevant checkbox. (To remove FIFO relevance later, simply deselect the checkbox.)
You can also set or remove FIFO relevance for multiple materials at once through collective maintenance by using the app Schedule Inventory Accounting Jobs (F2292).
2. Executing FIFO Valuation:
FIFO methods contain parameters that define goods receipt updates and the period used to determine the ending inventory quantity. In the app Execute FIFO Valuation (MRF1), select the appropriate method to proceed.
The FIFO methods offer two ways to calculate FIFO values based on goods receipts – monthly receipts and single receipts:
Available methods in system:
3. Displaying FIFO Valuation Data
You can use the app FIFO Results (MR35) to display FIFO valuation data for a material.
SAP S/4HANA Cloud streamlines the inventory balance sheet valuation process by offering tools and features tailored to various valuation methods, including the FIFO method and Lowest Value Determination method. By leveraging these capabilities, businesses can gain better insights into their inventory value, make informed decisions, and ensure accurate financial reporting. To learn more about the valuation method in SAP S/4HANA Cloud, visit the official documentation here.
The primary goal of inventory balance sheet valuation is to determine the value of a company's inventory at a specific point in time. This valuation helps organizations make informed decisions about purchasing, production, and sales activities. Moreover, it plays a vital role in accurate financial statement reporting, which is essential for compliance, taxation, and auditing purposes.
To better understand the FIFO method, let's consider a simple example. Imagine a grocery store that sells apples. The store receives shipments of apples at different times and prices:
1. January 1: 100 apples at $1 each
2. January 15: 150 apples at $1.10 each
3. February 1: 200 apples at $1.20 each
Using the FIFO method, the store assumes that the apples sold first come from the oldest stock, i.e., the January 1 shipment. Suppose the store sells 220 apples between January 1 and February 15. Here's how the inventory would be valued:
1. The first 100 apples sold (from the January 1 shipment) would be valued at $1 each, totaling $100.
2. The next 120 apples sold (from the January 15 shipment) would be valued at $1.10 each, totaling $132.
3. The remaining 30 apples from the January 15 shipment would be valued at $1.10 each, totaling $33.
4. The 200 apples from the February 1 shipment would still be in stock, valued at $1.20 each, totaling $240.
Using the FIFO method, the total value of the remaining inventory (230 apples) would be $273 ($33 from the January 15 shipment and $240 from the February 1 shipment).
To use the FIFO valuation method in SAP S/4HANA Cloud, follow these steps:
1. Flagging Materials for FIFO Valuation:
First, identify the materials relevant to FIFO valuation. Open the Accounting view of the material master record and select the LIFO/FIFO-relevant checkbox. (To remove FIFO relevance later, simply deselect the checkbox.)
Material Master for RM33
You can also set or remove FIFO relevance for multiple materials at once through collective maintenance by using the app Schedule Inventory Accounting Jobs (F2292).
2. Executing FIFO Valuation:
FIFO methods contain parameters that define goods receipt updates and the period used to determine the ending inventory quantity. In the app Execute FIFO Valuation (MRF1), select the appropriate method to proceed.
Execute FIFO Valuation for RM33
Execute FIFO Valuation result
The FIFO methods offer two ways to calculate FIFO values based on goods receipts – monthly receipts and single receipts:
- Monthly receipts: This option aggregates goods receipts by month and updates the total. For each material and valuation level, you will see the aggregated receipt value for each month.
- Single receipts: This option updates goods receipts for a given material separately at the receipt level. You can see the individual receipt values for each material and valuation level.
Available methods in system:
| Method | Description |
|---|---|
CURWOS | FIFO,Monthly receipts,Valuation current FIFO values are calculated based on monthly receipts, using the ending inventory of the current month. |
CURWSR | FIFO,Single receipts,Valuation current FIFO values are calculated based on single receipts, using the ending inventory of the current month. |
GJEWOS | FIFO,Monthly receipts,Val. previous year FIFO values are calculated based on monthly receipts, using the ending inventory of the previous fiscal year. |
GJEWSR | FIFO,Single receipts,Val. previous year FIFO values are calculated based on single receipts, using the ending inventory of the previous fiscal year. |
VOMWOS | FIFO,Monthly receipts,Valuation prev.mnth FIFO values are calculated based on monthly receipts, using the ending inventory of the previous month. |
VOMWSR | FIFO,Single receipts,Valuation prev.mnth FIFO values are calculated based on single receipts, using the ending inventory of the previous month. |
3. Displaying FIFO Valuation Data
You can use the app FIFO Results (MR35) to display FIFO valuation data for a material.
FIFO Results for RM33 (I)
FIFO Results for RM33 (II)
SAP S/4HANA Cloud streamlines the inventory balance sheet valuation process by offering tools and features tailored to various valuation methods, including the FIFO method and Lowest Value Determination method. By leveraging these capabilities, businesses can gain better insights into their inventory value, make informed decisions, and ensure accurate financial reporting. To learn more about the valuation method in SAP S/4HANA Cloud, visit the official documentation here.
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