Inventory Of Products And Supplies

Contact: University Accountant

Inventory Observation Instruction/Procedures Form

Implementing Procedures

Product inventory represents products held for resale or supplies kept on hand and consumed during the normal operation of a University organization. When a product or supply inventory’s aggregate value exceeds $50,000, it shall be recorded in the financial accounting system’s general ledger in ledger account 1300: Inventory – Workday or 1310: Inventory – Campus Subsystems. Product and supply inventories:

• · Will typically be located in the same general physical location, though partial ownership may be recorded by multiple department Cost Centers.
• Will normally be consumed within one year.
• May sometimes warrant being recorded as an inventory asset at less than $50,000; Financial Accounting and Reporting personnel will provide counsel in these situations.

Inventories are valued at the lower of cost, FIFO (first in, first out) method, or market. The Bookstore inventory is valued at lower of cost, retail inventory method, or market. Other costing methodologies may also be acceptable (e.g. standard unit cost, weighted average cost) but must be approved by the Office of Financial Accounting and Reporting prior to being implemented.

Adjustment to the Financial Accounting System

A detail priced-out listing of the product or supply inventory items shall be printed as of December 31 and retained for the current plus three prior years. The general ledger balance of the inventory should be adjusted to agree to the priced-out listing, as adjusted for items that have been received into or removed from the inventory but not yet reflected in the general ledger balance (e.g. unbilled receipts from vendors, item usage or sales, spoilage, etc…)

Where practical, the general ledger should be adjusted to reflect the monthly balance or activity in the subsidiary inventory system. Normally, this will occur as follows:

• Increase Ledger Account 1310: Inventory – Campus Subsystems / Spend Category SC1310: Inventory - Campus Subsystems for purchase of product or supply items with an offset to ACCOUNTS PAYABLE.
• Reduce Ledger Account 1310: Inventory – Campus Subsystems / Spend Category SC1310: Inventory - Campus Subsystems for the sale or use of products with an offset to ACCOUNT 4900-COST OF GOODS SOLD or Ledger Account 6100: Materials and Supplies / SC6129 Supplies (not otherwise specified), respectively.
  

Annual Physical Inventory Count

A physical count of the inventory will be made at least annually to provide the basis for adjusting the recorded value to the actual value based on the products on hand; see exception under Perpetual Inventory Systems, below. It is strongly encouraged that the annual physical inventory count be taken at a month end and during the months of September, October, November or December. Other months may be considered as business requirements warrant. Financial Services shall be notified of the annual inventory count date and will periodically evaluate procedures and observe the count.

The adjustment of the general ledger to reflect the annual inventory count, as adjusted for a) inventory received or sold but not yet recorded to the general ledger, should occur as soon as practical following the inventory count, but no later than December 31. The adjustment is recorded as follows:

• Fund FD01 will increase or decrease the recorded value in Ledger Account 1310: Inventory – Campus Subsystems / Spend Category SC1310: Inventory - Campus Subsystems with the offset to Ledger Account 6100: Materials and Supplies / Spend Category SC6199: Materials and Supplies (reclass).
• All other funds will increase or decrease the recorded value in Ledger Account 1310: Inventory – Campus Subsystems / Spend Category SC1310: Inventory - Campus Subsystems with the offset to Ledger Account 4900:Cost of Sales.

Inventory Reserve/Write-off – The recorded value of the product or supply inventory should be reduced for items that are obsolete, slow moving, or that are otherwise not likely to be sold or used within a reasonable time period, not to exceed three years. Reducing the unit carrying value of an item or establishing a general inventory reserve can accomplish this reduction if a full elimination of the items is not warranted. An analysis of the need to reduce the carrying value or to establish a general inventory reserve should be done annually or concurrent with the physical count.

Perpetual Inventory Systems – Campus organizations using a perpetual inventory system and following a documented cycle count process approved by the Office of Financial Accounting and Reporting, are not required to perform a single annual physical count. An approved cycle count procedure will ensure all items are counted during the year and that higher cost and larger volume items are counted multiple times.

Accounting for inventories controlled by perpetual inventory systems should use the following accounts:

• · Purchases are recorded as increases to Ledger Account 1310: Inventory – Campus Subsystems / Spend Category SC1310: Inventory - Campus Subsystems.
• · Inventory distribution will reduce Ledger Account 1310: Inventory – Campus Subsystems / Spend Category SC1310: Inventory - Campus Subsystems.
• · On the last day of each month, a Priced-out Inventory will be created and be accessible for one year (the December 31 priced-out list is to be maintained for the current plus three prior years). In the following month, an adjustment should be made to the general ledger beginning inventory balance to adjust to the Priced-out Inventory report from the prior month, as adjustment should be made to increase or decrease Ledger Account 1310: Inventory – Campus Subsystems / Spend Category SC1310: Inventory - Campus Subsystems with the offset to Ledger Account 4900: Cost of Sales / Spend Category SC4901: Cost of Goods Sold.