Subject Area Concepts
As discussed above, ItemInventory potentially records the unit counts of all stock present everywhere in the retail enterprise. StockLedgerAccount records the value of all merchandise held by the retail enterprise, which is actually owned by the enterprise.
StockLedgerAccount records one of the two supported methods of inventory valuation:
•Cost method of inventory valuation; and
•Retail method of inventory valuation.
The cost method requires fewer records to be kept than the retail method. There is, for example, no need to retain data on markdowns using this method. A major constraint, however, occurs when the retailer purchases the same product on different occasions at different prices. Two accounting options are available to address this: FIFO (first in, first out), and LIFO (last in, first out). The model supports the FIFO method. An average weighted cost, calculated with each receipt of an item, is used to avoid holding different stock at different cost prices. Average weighted cost is calculated as:
The retail method still remains a popular valuation method among retailers but primarily for historical reasons as it was previously impossible to maintain the retail value of the physical inventory without computerization. This method requires the system to maintain all amendments to the retail valuation, such as markdowns and employee discounts.
The Stock Inventory Ledger, together with the Financial Ledger, is intrinsic to the design of the model for two key reasons:
•Together, they provide the structure necessary to ensure unit and monetary value integrity in the enterprise's perpetual inventory; and
•They integrate the selling, tender management and inventory control aspects of an enterprise's operation using a journaling-ledger design metaphor.
The StockLedgerAccount is updated by its own journal, StockLedgerJournalEntry which is separate from ItemInventoryJournalEntry. This allows the retailer to:
•Summarize item inventory valuations by MerchandiseHierarchyGroup rather than keeping huge numbers of per-Item valuation records; and
•To keep StockLedgerAccount records for only that merchandise which the retailer actually owns. (In other words, the Stock Ledger Account need not include consignment stock.).