Subject: Financial Impact of Cost Adjustments in Perpetual Costing Method

Hello Community.

We are currently using the Perpetual Costing method. We've observed that, in certain scenarios—such as retroactive PO price adjustments or invoice price variances (IPV)—the item cost can turn negative or reflect an inaccurate valuation.

Given that the application maintains the fundamental accounting equation:

On-hand Quantity × Average Item Cost = Inventory GL Balance (Sum of Debits and Credits)

Any manual correction to the average cost results in a corresponding adjustment to the Inventory Valuation Account.

We are seeking insights into the financial implications of making such cost adjustments. Specifically:

• What are the downstream effects on financial reporting and reconciliation?