Finale uses the average cost method to track inventory value and calculate the cost of goods sold (COGS). This approach ensures that your accounting and reporting accurately reflect changes in purchase prices over time.

What Is Average Cost?

The average cost of a product represents the weighted average of all purchase prices paid for that item across all stock on hand. Each time new inventory is received through a purchase order or adjustment, Finale recalculates the average cost based on the total value and total quantity in stock.

How Average Cost Updates

Finale automatically updates the average cost each time inventory quantities change through purchasing, receiving, or adjustments. Here’s how it works at each stage:

When receiving a purchase order:
The cost entered on the PO line item contributes to recalculating the average cost once the items are received.
When creating manual stock adjustments:
Adding or removing stock through an adjustment like a Stock Change or a Stock Take with a specified cost will also update the inventory valuation accordingly.
When selling or transferring items:
Finale uses the most recent average cost to record the cost of goods sold (COGS) and reduce the total inventory value.

Example

Let’s say you start with:

10 units at $5 each ? Total value = $50

You then receive:

10 more units at $7 each ? Total value added = $70

Finale recalculates:

New Average Cost = ($50 + $70) ÷ (10 + 10) = $6.00 per unit

If you now sell 5 units, Finale records COGS as:

5 × $6.00 = $30

Your remaining inventory value becomes:

15 units × $6.00 = $90

Including Landed Costs

Finale also allows you to include landed costs—the additional expenses associated with purchasing and receiving goods, such as freight, customs, or insurance fees from adjustments to the average cost of the item.

When below the line adjustments are allocated to the line items on the purchase order, these landed costs increase the total value of the received inventory, ensuring the average cost per unit accurately reflects all costs involved in bringing products into stock.

Example:

You receive 100 units at $10 each = $1,000
You apply $200 in shipping and customs fees as landed costs

Your total value becomes $1,200, making the true average cost:

$1,200 ÷ 100 = $12.00 per unit

Key points about landed costs in Finale:

Finale allocates the landed costs across the received items by subtotal, weight, CBM, quantity, or by equal distribution.
The average cost updates automatically once landed costs are posted.
If you use QuickBooks integration, Finale will sync the Landed Average Cost as your Valuation and COGS value to Quickbooks.

Average Cost and Quickbooks Sync

If your account is integrated with QuickBooks Online, Finale’s average cost is used to post accurate inventory asset and COGS values.

When an item is shipped, Finale sends the cost based on your current average.
When you receive items, Finale updates inventory asset balances to reflect the recalculated cost.
When you perform an inventory adjustment, such as a Stock Change or Stock Take, Finale updates the inventory valuation and variance to QuickBooks Online.

This ensures your accounting in QuickBooks stays consistent with Finale’s inventory records.

Troubleshooting Average Cost Discrepancies

If your average costs don’t look as expected, here are a few common causes and how to address them:

1. Costs entered incorrectly on purchase orders
If a PO was received with an incorrect unit cost, Finale will calculate an inaccurate average.
? Fix: Edit the PO and cancel and re-receive the shipment to correct the value.

2. Missing landed costs
If landed costs were not applied at the time of receipt, the average cost may appear lower than expected.
? Fix: Add landed costs retroactively to the PO. Cancel and re-receive the shipment against the PO as average cost is calculated as of the receipt date.

3. Negative inventory balances
If stock went negative before replenishment, Finale will calculate the average cost "building up" from the negative value so your average costs may record inaccurately.
? Fix: Correct negative quantity on hand before receiving a PO.

4. Historical data edits
If you edit or backdate a transaction, Finale will recalculate averages as of that date, but it won’t change historical COGS for past sales.
? Fix: Confirm that any back-dated edits are intended..