Valuation turns quantities into financial information
Counting stock answers the question: how many units exist? Valuation answers another question: what amount can the company defend in its accounts and margin analysis?
For Algerian SMEs, weak valuation creates two problems at the same time. Management reads a distorted margin, and the closing file contains an inventory figure that is difficult to justify.
What cost should include
Under SCF logic, inventory cost includes the costs needed to bring the stock to its present location and condition. Purchase price is only one part. Transport, insurance, customs-related approach costs or conversion costs may matter when they are directly attributable.
The company should document what is included in cost and apply the rule consistently.
Weighted average and FIFO/PEPS
For interchangeable goods, the practical methods to discuss are weighted average cost and FIFO/PEPS. Weighted average smooths purchase price changes by recalculating the unit cost after receipts. FIFO assumes that the oldest received units leave first.
LIFO should not be used as a normal Algerian valuation shortcut unless the accountant has a documented basis under the applicable framework. For content and product settings, DZ Compta should therefore push users toward documented, stable and reviewable methods.
Closing controls
Before closing, review:
- items with quantity but no cost;
- negative quantities;
- abnormal unit costs;
- duplicated item codes;
- old stock with no recent movement;
- damaged or obsolete stock;
- supplier returns and credit notes;
- large differences from physical inventory.
Stock should not be carried above the amount the company can reasonably recover. Slow-moving or damaged goods may require an impairment review.
Link with accounting
Stock valuation affects financial statements, the balance sheet, margin reading and taxable result preparation. It should also reconcile with stock movements, purchases, returns and VAT records.
Official references
- SCF implementing order, inventories and accounts
- Law 07-11 on the Algerian financial accounting system
- Algerian DGI - IBS and taxable result
Keep valuation defensible
Stock valuation must be stable, documented and connected to real movements. A margin report is useful only when quantities and costs can both be explained.