## Zoho Inventory Documentation Index

Access the complete documentation index at:
https://www.zoho.com/us/inventory/llms.txt

Use this file to discover all available documentation pages before proceeding.

[Back](./)

# What is Weighted Average Costing (WAC) method in Zoho Inventory?

Weighted Average Costing (WAC) is an inventory valuation method that calculates the average cost of all inventory items. This average cost is then used to determine the **Cost of Goods Sold (COGS)** and the value of your remaining stock .

##### Here’s How the Weighted Average Cost Is Calculated (WAC):

The Weighted Average Cost (WAC) method calculates the total value of available quantities and divides it by the total quantity available.

In simple terms,

![WAC Formula](/inventory/kb/images/items/wac-formula.png)

Let’s break it down with an example,

**1\. Initial Transaction:**

Transaction

Quantity

Unit Price (BCY)

**Purchase**

1

10

**Purchase**

2

20

**2\. Weighted Average Costing (WAC) Calculation:**

![WAC Calculations](/inventory/kb/images/items/wac-calculations.png)

This means every unit of stock is now valued at 16.67.

**3\. Sales Transaction**

Transaction

Quantity Sold

Weighted Average Costing (WAC)

Remaining Stock

Remaining Value (BCY)

**Sales**

1

16.6667

2

33.34

##### Here’s How the Weighted Average Costing (WAC) Is Then Updated:

With **Moving Average Costing/Perpetual Average**, the WAC is recalculated every time you add new stock. Here’s an example of how this works:

**1\. New Transactions**

Transaction

Quantity

Unit Price (BCY)

**Purchase**

1

5

**2\. Updated WAC:**

Here’s how we can calculate the updated Weighted Average Costing:

![Updated WAC](/inventory/kb/images/items/updated-wac.png)

Applying this formula, we get:

![Applying Formula](/inventory/kb/images/items/applying-formula.png)

**3\. Sale after update:**

Transaction

Quantity Sold

Weighted Average Costing (WAC)

Remaining Stock

Remaining Value (BCY)

**Sales**

1

12.78

2

25.56

#### Use Cases

Let’s take a look at some of the other use cases for WAC:

*   [Negative Inventory](/us/inventory/kb/items/inventory-wac-report.html#Negative-Inventory)
*   [Half Inventory](/us/inventory/kb/items/inventory-wac-report.html#Half-Inventory)
*   [Zero Inventory](/us/inventory/kb/items/inventory-wac-report.html#Zero-Inventory)
*   [Backdated Transactions](/us/inventory/kb/items/inventory-wac-report.html#Backdated-Transactions)

### Negative Inventory

**Use Case**: You record a **sales transaction before purchase**, causing inventory to temporarily go negative. This can happen if stock is sold before it’s recorded in the system.

Example:

Date

Transaction

Quantity

Unit Price (BCY)

Stock Level

Remarks

Jan 5

Sale

\-1

???

\-1

**Negative inventory created**

Jan 7

Purchase

+2

20

1

Stock added

**WAC after purchase:**

*   Total cost = 2 × 20 = 40
*   Total quantity = 2 (even though 1 was already sold, it is now fulfilled)
*   **WAC = 20**
*   Backdated sale on Jan 5 will **use this updated WAC**

### Half Inventory

**Use Case**: Customer demands more stock than is available. Only part of the order can be fulfilled. Common in bulk or raw material industries.

Date

Transaction

Quantity

Unit Price (BCY)

Stock Level

Remarks

Feb 1

Purchase

5

30

5

Initial purchase

Feb 2

Sale (Attempted: 10)

5

30 (WAC)

\-5

Only 5 units sold due to limited stock

*   **Requested Sale Order Quantity**: 10 units
*   **Available Stock**: 5 units
*   **WAC = 30** (remains the same until new purchase)
*   Sale is partially fulfilled with available stock. Remaining 5 units are pending or backordered.

### Zero Inventory (WAC Reset)

**Scenario:** Stock is completely sold out. When a new purchase arrives, a fresh WAC is calculated (previous WAC is discarded).

Date

Transaction

Quantity

Unit Price (BCY)

Stock Level

Remarks

Mar 1

Purchase

3

15

3

Initial purchase

Mar 3

Sale

3

15 (WAC)

0

Inventory exhausted

Mar 5

Purchase

4

20

4

WAC resets to 20 (new cost)

*   **WAC before Mar 3 Sale**: 15
*   **Inventory after sale**: 0
*   **Mar 5 Purchase**: WAC becomes 20 (based solely on new purchase)
*   **No carry-forward of previous WAC when inventory is zero**

### Backdated Transaction

**Use Case**: You add or edit a transaction with a **backdated entry**. This can affect historical WAC and COGS if the system recalculates retroactively.

**Example**:

Date

Transaction

Quantity

Unit Price (BCY)

Remarks

Apr 5

Sale

1

???

WAC unknown if no purchase yet

Apr 7

Purchase

2

25

WAC = 25 (recorded later)

Apr 3

Purchase(backdated)

1

20

New WAC = 20

The April 5 sale now uses **WAC = 20** instead of 25.