Using different costing methods can lead to different financial results. SocrateCloud uses several cost calculation for the purpose of accounting, financial analysis or decision making. SocrateCloud uses the following costing methods:
Standard Cost
Actual Average Cost
Only one method can be used within an Accounting Schema. The selected costing method can be changed at any time. Even though only one method can be used, the data obtained is useful for trend comparison. Costs are recorded in the standard currency.
When using the standard method, the system maintains a standard cost and keeps track of the differences between actual costs and standard costs over time. Due to price changes, it is necessary to periodically adjust the standard costs. Standard costs (Prefixed Price) may be set manually or can come from sources such as:
Current Average Price
Last Offered Price
Acquisition Price
When an item is purchased, it is posted at the standard cost. When posting the corresponding sales invoice, the difference between the standard price and the actual price is recorded in a special account reserved for standard cost deviations. Any late recordings of reversal invoices, discount invoices or gains/losses from exchange rate on are also posted to the cost deviation account. The balance of the standard cost deviation account shows the relation between standard cost and actual cost.
The actual cost is adjusted when the same product is received at different costs.Once the item is received, it is registered at its real cost. If there is no actual cost available for that product, the standard price is used. In case there is no standard price either, the purchase price is used.
When the appropriate invoice is recorded, the difference between the registration price and the actual price is calculated, and costs are adjusted. If the reversal invoices, the discount invoices or the gains/losses from exchange rate are recorded later on, these values are posted to the product account.
An important costing issue is correcting the cost in case the product has been sold prior to receiving the invoice. SocrateCloud does not retroactively adjust the cost used in a transaction. Instead, it adjusts the actual cost for future use.