Introduction

Inventory costing methods help businesses determine the total cost of a product. In Bukku, the system uses the Weighted Average Cost method to continuously track inventory and calculate Cost of Goods Sold (COGS) in real time.

With the weighted average method, Bukku calculates the average cost of all units of a particular stock keeping unit (SKU). Each new purchase updates the total value and quantity on hand, and the average cost is recalculated.

Formula:

Average Cost = Total Value of Stock / Total Units on Hand

Note: Make sure inventory tracking is enabled for the product in the Products & Services module. This allows Bukku to track the quantity on hand, update inventory value, and calculate Cost of Goods Sold automatically.

Calculating Average Cost for Inventory

To illustrate how Bukku calculates average cost and Cost of Goods Sold (COGS), let’s look at an example with pens.

Step 1: Record Purchases

First, record the purchase transactions for the pens.

1st Purchase: On 03/12/2025, 10 units of pens were purchased at RM 2.00 per unit, bringing the total purchase value to RM 20.00.

2nd Purchase: On 10/12/2025, another 6 units of pens were purchased at RM 2.20 per unit, with a total purchase value of RM 13.20.

Step 2: Calculate the Average Cost

After recording both purchases, Bukku combines the cost of all units to calculate the weighted average cost automatically.

Total Value of Pen: RM 33.20 (RM 20.00 + RM 13.20)
Total Units on Hand: 16 units (10 Units + 6 Units)

Using the weighted average cost formula:

Average Cost per Unit: RM 33.20 ÷ 16 = RM 2.075

Note: Bukku calculates average cost using up to four decimal places in the backend for accuracy, but displays values rounded to two decimal places in reports and invoices.

Step 3: Record Sales and Cost of Goods Sold

Next, record a sales transaction.

On 15/12/2025, 4 units of pens were sold at RM 4.00 per unit.
At the time of sale, Bukku uses the current average cost of RM 2.075 per unit to calculate the Cost of Goods Sold.
The Cost of Goods Sold for this sale is RM 8.30 (RM 2.075 × 4).
Behind the scenes, Bukku automatically performs the double-entry accounting by:
- Reducing the inventory balance by RM 8.30, and
- Recording RM 8.30 as Cost of Goods Sold.
At the same time, the inventory quantity and value are updated in the Inventory Report, ensuring that both stock balances and financial figures remain accurate and in sync.

How Bukku Handles COGS with Double Entry

Using the pen example above, Bukku applies weighted average costing and automatically records the correct double entries for both inventory and Cost of Goods Sold whenever inventory transactions occur.

Purchase Transactions

When pens are purchased through Purchase Bills, Bukku increases the inventory value but does not yet recognise Cost of Goods Sold.
Example: On 03/12/2025, 10 units of pens were purchased at RM 2.00 per unit.
When the product is selected in the purchase bill, Bukku automatically assigns the inventory account.
Once the transaction is saved, you can click the Double Entry button to review the entries.
For this credit purchase, Bukku:
- Debits Inventory to increase stock value
- Credits Creditor (Accounts Payable) to reflect the amount owed

Sales Transaction

When pens are sold, Bukku recognises Cost of Goods Sold at the time of sale, based on the current average cost.
Example: On 15/12/2025, 4 units of pens were sold at RM 4.00 per unit.
When creating the sales invoice, record your sales under the sales income account as usual.
After saving the transaction, click the Double Entry button to view the accounting entries.
For this credit sales, Bukku:
- Debits Debtor (Accounts Receivable) and Credits Sales Income for the sales amount
- Credits Inventory to reduce stock value
- Debits Cost of Goods Sold based on the weighted average cost

Impact on Profit & Loss and Inventory Balances

For the pen sale on 15/12/2025, Bukku automatically updates both your Profit & Loss and Inventory account:

Sales Income: RM 16.00 (4 × RM 4.00)
Cost of Goods Sold: RM 8.30 (4 × RM 2.075, based on the weighted average cost)

Gross Profit is calculated automatically as:

Sales Income − Cost of Goods Sold = RM 16.00 − RM 8.30 = RM 7.70

At the same time, the Inventory Details Report shows the updated stock value for the pens as RM 24.90, reflecting the remaining inventory after the sale. This amount is posted to the Inventory account in the Balance Sheet, ensuring your financial statements and inventory records are always aligned.

By updating COGS in the P&L and stock value in the Balance Sheet in real time, Bukku ensures that both profitability and inventory balances are accurate and up-to-date without any manual adjustments.

Note: As long as your inventory is set to the Perpetual Inventory Method, you do not need to enter opening or closing stock manually. Opening and closing stock will not appear in the Profit & Loss statement, as Bukku automatically calculates Cost of Goods Sold using the weighted average cost method in real time.

Tracking Profitability in Bukku

Bukku allows you to track profitability at the invoice level for products with inventory tracking enabled. This helps you monitor your profit margin for each product in real time.

On a sales invoice, you can click the Profitability button to see the breakdown for each item.
Calculation:
- Profit = Sales Amount − Cost
  - Profit = RM 16.00 − RM 8.30 = RM 7.70
- Profit Margin % = (Profit ÷ Sales Amount) × 100
  - Profit Margin % = (RM 7.70 ÷ RM 16.00) × 100 ≈ 48.13%
Profit Reports
- Bukku also provides reports of Profit Summary and Profit Detail to review profitability across invoices and products.

Frequently Asked Questions (FAQ)

1. What inventory costing method does Bukku use?

Bukku uses the Weighted Average Cost method to track inventory. The average cost is recalculated automatically every time a purchase is recorded.

2. Does Bukku update Cost of Goods Sold (COGS) automatically?

Yes. When inventory tracking is enabled, Bukku automatically calculates and records COGS at the time of sale based on the current weighted average cost.

3. Do I need to manually enter opening or closing stock?

No. When using the Perpetual Inventory Method, opening and closing stock do not need to be entered manually and will not appear in the Profit & Loss statement. Bukku auto-calculates Cost of Goods Sold in real time.

4. When is inventory value updated?

Inventory quantity and value are updated:

When a purchase bill is recorded (inventory increases)
When a sales invoice is issued (inventory decreases and COGS is recognised)

These updates are reflected instantly in inventory reports and financial statements.

5. How does Bukku handle double-entry accounting for inventory?

Bukku automatically records the correct double entries:

Purchases:
Debit Inventory, Credit Accounts Payable or Cash/Bank
Sales:
Debit Accounts Receivable, Credit Sales Income
Debit Cost of Goods Sold, Credit Inventory

No manual journal entries are required.

6. Why doesn’t opening or closing stock appear in my Profit & Loss?

Because under perpetual inventory, stock movements are recognised continuously. Cost of Goods Sold (COGS) is calculated automatically at the time of sale, so opening and closing stock adjustments are not shown separately in the Profit & Loss statement.

If you prefer to see opening and closing stock in your Profit & Loss, you can switch to the Periodic Inventory Method. With this method:

You must manually enter closing stock on a monthly or yearly basis under Stock > Periodic Value.
Bukku will then calculate COGS based on your closing stock, and opening/closing stock will appear in the Profit & Loss.

7. How many decimal places does Bukku use for average cost?

Bukku calculates average cost using up to four decimal places internally for accuracy. Reports and invoices display values rounded to two decimal places.

8. Can I see profit for each sales invoice?

Yes. For products with inventory tracking enabled, you can click the Profitability button on a sales invoice to view sales amount, cost and profit margin per item.

9. What reports can I use to review profitability?

Bukku provides: