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What are "Expenses Included in Valuation"

Continuing the discussion from Posting Purchase Invoice - requires "default Expenses Included In Valuation in Company [company name]":

Even though I can pass the error message as mentioned in the linked Topic by creating an expense Account named “Expenses Included In Valuation”

I still do not understand what that “Expenses Included in Valuation” are for from the accounting perspective. Can someone explain that to me?

thanks for the feedback. It’s pretty intimidating though :weary:

I’ll try to understand what you are actually saying and how this applies to my scenario

@vrms expenses included in valuation are costs that you have that are directly related to your goods but aren’t explicity.

One sample our friend @Nguy_n_Khoa, have offered, but the most common scenario for business, are when you are handling importation of goods, from foreign suppliers.

In that scenario you need pay taxes in your custom departament, also freight, warehousing etc.

The taxes, aren’t related to the imported goods, but they affect the value you should report your goods at warehouse level. So the functionality we have in accounting systems is include these costs into the valuation of the goods at the warehouse level.

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I think they’re also called accessory costs. Basically, as Max has said, any costs you bear in getting an item into your warehouse has to be included in the valuation of the item. Item costs 400, EIV (freight+taxes+duties) costs 100, them item value in inventory should be 500.

ok, understood more or less. thx @Chude_Osiegbu @max_morais_dmm @Nguy_n_Khoa.
Still I believe it’s hard to grasp logocally though.

I’d say the Value of Stock items are assets somehow and as assets (things you own) should be things that (sooner or later) can be converted into real money. And if you have the item costs, they can be converted by selling them, while the freight+taxes+duties are simply done.

Anyway, thanks for clarifying. I’ll mark @Nguy_n_Khoa’s answer (the first one) as solution even though practically it was the sum of all 3 answers which shined sufficient light on the matter

@vrms your description os valid for selling, but we are discussing about purchasing, and from foreign companies, were that scenario is barelly common.

hi Max, do you have some guidelines on how to add the other expenses to an asset purchase? would like to add freight and taxes to asset purchase, they are in separate purchase order.