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The Average Cost is updated whenever either of these two types of transaction is entered:
- Stock Purchase (AP Invoice)
- Stock Value Adjustment
The calculation is made by taking the stock on hand resulting from the transaction, and then comparing this quantity with the quantity of the transactions itself. The quantity of the transaction is valued at the transaction rate, and the remainder of the stock on hand is valued at the existing average cost rate. This gives a new stock valuation and hence a new average cost.
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