Inventory Count (Alberta Council)

From SJA

THIS IS A DRAFT DOCUMENT.

Contents 1 The Need 2 Policy 2.1 Purpose 2.2 Scope 2.3 Responsibility 2.4 Definitions 2.5 Reference and Related Statements of Policy and Procedure 3 Procedures 3.1 Inventory Count 3.2 Overages and Shortages 4 Attachments

The Need

Inventory is an important and sizable asset to many companies. A relatively small error (whether from loss, waste or theft) in inventory may have a significant effect on net income.

Principles of internal control require that inventory be adequately controlled. This refers to both physical security, as well as the maintenance of adequate accounting records.

A perpetual inventory system should provide good control over the physical quantitiy of inventory. However, over time, theft, waste poor record keeping or other causes may result in a difference between what the records indicate and the actual quantity on hand. From time to time, a physical count of inventory and reconciliation of records is necessary.

Policy

The company shall perform a physical inventory count quarterly to ensure that quantities recorded are accurate.

Purpose

The purpose of this Statement of Policy and Procedure is to establish the requirement to count inventory, to reconcile records to actual inventory, and to provide guidance as to what to do when there are differences.

Scope

This policy applies to Stores Departments and the Finance Department.

Responsibility

• The Finance Department is responsible for initiating and managing physical inventory counts for all inventories.
• The Finance Manager is responsible for initiating a physical inventory count quarterly and at year-end to review accuracy of inventory records.
• The Stores Department and Administration in each location is responsible for assisting the Finance Department with each inventory count as per the inventory guidelines.

Definitions

• "Perpetual inventory" means a way of maintaining records that track, in real time, the movements of materials into and out of inventory so that at any time, an accurate picture of inventory on hand may be obtained from the records.
• "Overage" means when the physical count of inventory indicates that there is more in inventory than the inventory records indicate.
• "Shortage" means when the physical count of inventory indicates that there is less in inventory than the inventory records indicate.

Reference and Related Statements of Policy and Procedure

• SPP FN 2.09 - Receipt of Purchased Goods and Services
• Finished Goods Inventory
• Inventory Order Requisition
• SPP FN 3.05 - Costing
• SPP FN 7.05 - General Accounting Procedures

Procedures

Inventory Count

1. The company shall perform a physical count and reconciliation of all inventories. The actual date will be selected by the Finance Manager and if necessary, in consultation with the company's external accountants or auditors.
2. Each location will be counted by a count, consisting of two employees, one from the Stores Department and one from Administration.
3. Each count will be reviewed by the Finance Manager. Questions regarding the count or quantity will be directed to the Administrative Coordinators.

Overages and Shortages

When overages or shortages are identified in comparing perpetual inventory records to actual physical inventory counts, every attempt must be made to isolate the reasons for the differences.

The Finance Manager will review and document the differences. Differences will be discussed with the Administrative Coordinaotr/Stores Administrator in each training centre.

When reconciliation and documentation has been completed, perpetual inventory records will be reset to the actual amounts. The overage or shortage is recorded in cost of goods sold and inventory account.

If a shortage cannot be explained as an accounting error, the processes for the security of inventory may be reviewed.

Attachments

• Attachment A - Sample Inventory Count Instructions
  

  

  Sample Inventory Count Instructions
• Attachment B - Inventory Count Sheet
  

  

  Sample Count Sheet
• Attachment C - Inventory Count Adjustment Sheet
  

  

  Inventory Count Adjustment Sheet
• Attachment D - Inventory Reconciliation
  

  

  Inventory Adjustment Journal Entry