Lesson 2 of 5 · 3 min

Average cost, in plain words

One figure per product: the average of what you paid for what's on the shelf. Here's how it moves.

  1. What's a bag of basmati on your shelf worth? You bought some at one price and some at another. Ledger keeps one figure per product: the average of what you paid for the bags you have. Say there are 40 bags, at Rs 7,000 each on average.
  2. A bill brings 60 more at Rs 7,500. Now there are 100 bags, which cost Rs 280,000 plus Rs 450,000: Rs 730,000 in all, so Rs 7,300 each. That's the weighted average: the bigger delivery counts for more.

  3. What the invoice posted

    Selling never changes the average. Invoice 10 bags to City Cash & Carry and they leave at Rs 7,300 each: Rs 73,000 goes to cost of goods sold, and 90 bags stay on the shelf, still at Rs 7,300.
  4. So you know your profit on those ten bags the moment you invoice them: Rs 88,000 less Rs 73,000. Items → Stock shows each item On hand, its Average cost and its Value, the Value at cost of it all, and a Running low view.

Try it

Opens Ledger. You'll be asked to sign in first; new businesses get a free week, no card needed.

See your stock

Quick check

2 quick questions. Pick an answer and Leo will tell you how you did.

1. You have 40 bags at Rs 7,000 and a bill brings 60 more at Rs 7,500. What's the average now?
2. You invoice 10 of those bags. What happens to the average?

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