Moving Average Costing

AWRA values stock at a true moving average, held in your workspace currency. Every receipt — a supplier check-in, a purchase order receipt, a count that finds more than the books held, a return at the till — blends its cost into the item’s average before the stock lands. The formula is: new average = (on-hand × old average + received × receipt cost) ÷ (on-hand + received). When nothing is on hand, the receipt simply sets the cost outright, because there is nothing to blend with.

Two things the average no longer does. It is not reset to the item’s buying price when stock runs to zero, so an item that sells out and is restocked carries the cost of the restock, not a figure typed on the item months ago. And it is not the buying price at all once stock has been received: the buying price is a starting figure and a fallback, while the average is what the stock actually cost. Issues and sales then leave at the average current at that moment, so cost of goods sold follows what the shelf was bought for.

In practice: a Nairobi electrical wholesaler holds 80 rolls of cable at an average of KES 2,400. A delivery of 120 rolls arrives at KES 2,650. The new average is (80 × 2,400 + 120 × 2,650) ÷ 200 = (192,000 + 318,000) ÷ 200 = KES 2,550. A week later every roll has sold; the next delivery of 50 at KES 2,700 sets the average to KES 2,700 outright, because nothing was left to blend with — not back to the KES 2,300 buying price on the item card.

Each receipt’s cost is decided in a fixed order, and the first one that applies wins. First, a unit cost typed on the check-in line: the field is optional, in your workspace currency, and is how you give a receipt a cost the system cannot know — a cash purchase, a production run checked in as finished goods. Second, for a check-in against a purchase order, the order line’s price: net of tax when the order is tax-inclusive, and converted to your workspace currency at the exchange rate recorded on the order, or today’s rate when the order has none. Third, a count gain comes in at the item’s current average, so finding stock does not move its cost. Otherwise the receipt takes the current average, or the buying price when the item has no average yet.

The cost used and where it came from are stored on the receipt line. That matters when a cost looks wrong later: you can see whether it was typed, taken from a purchase order, or fell back to the average, which tells you where to look. A typed cost that was a typo, or a purchase order raised at the wrong price, is fixed at the source — and because the average has already blended it, the fix is a correcting movement, not an edit of history.

In practice: a Kampala distributor raises a purchase order to a Nairobi supplier in KES, recorded at 1 KES = 28.6 UGX, for 500 units at KES 230 tax-inclusive with 16% VAT. On receipt the line cost is 230 ÷ 1.16 = KES 198.28, converted at the order’s rate to UGX 5,670.69 a unit, and blended into the average in Ugandan shillings. The same week a cash purchase of 20 units from a market trader is checked in without an order; the storekeeper types UGX 6,100 as the unit cost, so that receipt carries what was actually paid rather than the current average.

The receipt’s journal posts at the same cost the average used: Dr Inventory, Cr the supplier payable or the receiving clearing account. Before 14 October 2026 that journal used the item’s buying price, so inventory in the ledger and inventory on the valuation report could disagree for no reason anyone could see; now they start from one figure. The valuation, dead stock, turnover and ABC reports all read the moving average, and each says so in its heading — Costing: Moving average, in your workspace currency — so a reader knows what the figure is.

Two related rules. Landed costs — freight, duty, clearing — still allocate to batches on a purchase order receipt, so batch-tracked stock carries its landed cost on the batch; unbatched stock is valued at the moving average. And a till sale stamps the unit cost on each sale line at the moment of sale, so a later receipt that moves the average does not rewrite an old sale’s margin, and a return reverses exactly the cost that sale posted. Lines sold before 14 October 2026 fall back to the current cost.

In practice: at month end the finance lead of a Mombasa hardware chain compares Inventory in the trial balance with the valuation report. They now move together, so a difference points at something specific — a manual journal to the inventory account, or stock received before the change. She then opens dead stock: an item with a high value and no movement for 120 days is valued at what it actually cost, not at an outdated buying price, which is the figure she needs when deciding whether to discount it.