How to determine if average cost is correct

This is a frequent question from out there: how could I determine if Average cost is correct? How NAV calculates this average?

The simple answer is: average cost is determine by the following formula through value entry table: (sum of actual cost + sum of expected costs) / (sum of item ledger entry quantity). This will provide the average cost (unit cost) when Adjust cost is run.

And, how NAV calculates this average cost for a specific date? This is done by ordering the value entries by valuation date. This date is when entry is valued. Thus, we need to order the entries how they are valued. Once this is done, next order to consider is: inbound entries first, outbound entries next. In other words: we calculate the average cost by using the positive entries and we then deduct the value of the outbound entries to find out the final average cost on that given date