UNIT 5 STORES ACCOUNTING PROCEDURE

Transcription

1 UNIT 5 STORES ACCOUNTING PROCEDURE 5.1 Introduction Objectives 5.2 Classification and Codification Classification Codification Priced Vocabulary of Stores 5.3 Stores Accounting Objectives Account Records Receipt Issues Suspense Account Monthly Summary of Stock Receipt and Issues Priced Stores Ledger Transfer Entry 5.4 Stock Taking 5.5 Summary 5.6 Key Words 5.7 Answers to SAQs 5.1 INTRODUCTION The store plays a vital role in the functioning of a company. The main function of a store is to provide uninterrupted supply to the manufacturing departments. Stores Accounting Stores accounting is the process of recording details of stock movements and balance in value. It is sometimes undertaken by the finance department, but there is much to be said for it being handled by the store functionaries. For smooth execution of works or manufacturing of products 'receiving, storing and issue of material' are important as the quality of finished product depends on the materials used. Also smooth and efficient work or production depends on timely supply of materials. A properly stocked containing store materials including tools and plants is absolutely necessary for successful operation of a manufacturing organisation. For effective maintenance of stores proper accounts are to be maintained. The stores account should give sufficient information regarding the different types of materials stocked, quantity and value of each material, their receiving time and quantity as well as cost of maintenance of stores. Store account thus indicates the value of stock held, providing a basis for issue rates and convenient means of stock control by value. By analysing the inventory record and stock items, where the usage during a number of past recorder period has been noted, one can decide the safety stock limits. Poor management of stores may create serious problems even leading to business failures. A stock out creates a serious problem for the organisation. Efficient stores management is thus essential for efficient functioning of any organisation. After studying this unit, you should be able to understand how to maintain stores account, obtain information about the status of all the materials in stores regarding their receipt, issue and stock value so as to exercise better inventory control, and

2 Stores Management know the procedure of stock verification. 5.2 CLASSIFICATION AND CODIFICATION Receiving material is an important control point. As soon as materials are received they should be checked with the packaging slips and the purchase order. The details particularly the discrepancies are recorded in a separate report generally known as Goods Received note (GR note). This is used for invoice payment, for further purchase negotiation and for closing the order. The materials are then inspected for acceptance 1 rejection. The accepted materials are sent to store for recording and storing. Concerned departments are informed about the receipt of the materials Classification In stores the inventories are generally classified as raw materials, work in progress, finished goods, ready made or bought out components, consumable stores, spares and scraps. The materials are stored separately for easy retrieval. Classification is bringing together under a common designation items having similarities of specification, usage, kind, qualities, relationships and so on. It is complementary to standardization, although standardization is possible without classification. In that event, there would be too many standards for the same item, which classification reduces through the process of variety reduction. In stores operation also, classification brings about variety reduction thereby increasing profitability Codification The usual way of identifying an article in stock is by its simple description. In order to identify exactly and accurately a store item a very long description is necessary at times. Whell a number of items are stocked in stores it becomes convenient to codify them for their quick identification. It should have some logical basis of identification which is precise, exact and less cumbersome. For example MSO 20 indicates Mild Steel round bar of 20 mm diameter. Sometimes alphabets / numericals are used at random, particularly when the items are not many. Things described in everyday life, the nomenclature of items is a product of inconsistent methods in which subjective thought or personal preference is very much present. For this reason it is not common for the same subject to be called by numerous names. Such a situation in the stores would lead to understand perfectly what the user wants. By codification, all the relevant information on Yhe iten1 are accommodated, however, is not to be regarded as short hand. A short hand symbol may represent more than one word, while codification is a translation of the description into digits, letters and symbols which identifies the item uniquely. A 'Stores Code' identifies all store items exactly. Depending upon the needs, a code is specifically designed to serve the specific need of an organization Priced Vocabulary of Stores In order to ehsure accuracy of posting of all transactions and facilitate the preparation and valuation of indents, a list of materials in stock, showing their correct description and identifying number (code) commonly known as 'Priced Vocabulary' of stores should be prepared on the basis of an up-to-date classification of stores, which should be adopted throughout the organisation. It should be kept up-to-date by issue of correction slips, as and when necessary. SAQ 1 (a) What are the advantages of a good coding system? (b) What is Priced Vocabulary of Store?

3 5.3 STORES ACCOUNTING Stores Procedure Accounting Objectives The objectives of maintaining stores account is (a) (b) (c) (d) (e) to keep record of different materials received in store. to keep record of all issues of materids. to indicate the values of stocks held. to provide a basis for determining Issue Rates. to debit the cost of acquisition of all materials to the final head of accounts concerned or the particular work for which they are required. (0 to help provide adequate storage of materials to meet the demands of the consuming departments. (g) (h) (i) to help minimize obsolescence, spplus and scrap through proper codification, preservation and handling. to highlight stock accumulation, discrepancies and abnormal consumption and effect control measures. to help good housekeeping so that material handling, preservation, stocking, receipt and issue can be done efficiently. (j) I to assist in verification and provide supporting information for effective purchase action Account Records The main account records of stores are : (1) Bin Cards /Register of Bin Cards. (2) Goods received sheets I Register of GRS. (3) Indent / Summary of Indent. (4) Summary of Stock Receipts / Issues. (5) Priced Stores Ledger. (6) Transfer Entries. (7) Suspense Account Receipt Bin Cards Any material received or issued from store is immediately recorded in the Bin Card which always shows the quantity of materials available in the store. It also gives information regarding date, code of department, serial number, description, specification, unit, quantity, location, and maximum - rninumum records. When a purchase order is placed, a copy is sent to the stores indicating quantity and delivery date. The stores receiving section receives the materials, checks them against consignment documents, checks quantity and then submits the materials for inspection to the quality control section where required. A proforma of Bin Card as used in CPWD is given at the end (Annexure I). Goods Received Sheet After receipt of materials, and its scrutiny, a Goods Received Sheet is prepared recording any discrepancies, surpluses or shortages or rejections and which is then forwarded to purchase and inventory control sections. The store-keeper forwards invoices, bills, GRS and other documents to the Accounts Section for clearing bills after inspection of materials. Usually receipt of materials received from internal divisions or returned from user departments are acknowledged by preparing transfer entries. A proforma of Goods received sheet as used in CPWD is given at the end. (Annexure 2)

4 Stores Management Materials received in the goods receipt section, until they are identified and all paperwork connected therewith are completed, are some what defenceless in the sense that the user may remove them without bothering to inform the stores. It is possible that this was done to some urgency felt by the user. Anyway, this underscores the importance of security in the s. r. section as also the need for clear-cut instructions that materials removed before completion of paperwork are the responsibility of the user who has to sign an undertaking in this respect Issues Indentation Procedure Stores in stock represent money. Any indiscriminate issue system can result in misappropriation, waste, improper use etc. It is, therefore, desirable to have a proper indentation procedure so that issues are made under proper authority to users. Store-keepers should have complete details of the names, designation and specimen signatures of all authorised officials to approve the indents. Various types of documents are in use when stocks are issued against a valid requisition. Some of the names commonly used are (i) Stores Indent (ii) Stores Requisition (iii) Stores Order (iv) Stores Schedule (v) Issue Voucher / Note (vi) Demand Note etc. Indents or Requisition Vouchers are prepared by user departments or production shops drawing materials from stores. Usually four or six copies are prepared by carbon process on the basis of one item one indent. However, more than one smaller items could be included in the same indent. It is filled in with reference to the priced stores vocabulary. All the indents are to be signed by Competent Authorities. A record of the store indented should be simultaneously kept in the Register of Indents. Indents should be filled up carefully as all subsequent accounting depends upon it. In order to facilitate the preparation of the Summary of Indents separate indents should be prepared for items failing under each sub-head of stocks as far as possible. Indents, on receipt, are scrutinized, registered and then passed on to the concerned store for issue of materials. In case sufficient stock is not available the purchase office is informed for necessary action. The indenting division is also suitably intimated and the requisition is kept pending till adequate supply is received. Such stock out situations affect production and should be avoided. A proforma of Stores Indent as used in CPWD is given at the end (Annexure 3). Issue Rate For finding out the cost of finished items it is essential that the cost of all component materials should be considered. For this an Issue Rate is assigned to each article as it is brought on stock. The rate is fixed, on the principle that the cost to be charged to works on which the materials are to be used. It includes the following costs wherever and whichever is applicable. (i) Ordering Cost (ii) Invoice Cost (iii) Freights (iv) Transport (v) Insurance (vi) Packaging (vii) Inspection (viii) Storage Charges i

5 Of the various costing methods the most commonly employed is weighted average method. This would be clear from the following example : - Receipts Issues Balance, 1 1 Ir~voice Value Qty. Averg. Value Qty. Averg. Value Cost / (Rs.) Price (Rs.) Unit (h.1 (Rs.) Qty', Stores Accounting Procedure Storage charges include expenditure incurred after the acquisition of stock. It includes expenses in handling,'keeping initial accounts, the security of: the stocks, maintenance of store godowns and other incidental expenses. It is added on a fixed percentage basis of the basic issue rates so as to form the Issue rate of the article in question Suspense Account The accounts of stores are based on the principle that the cost of acquisition of any material should be debited to the final head of account concerned or the particular work for which it is required, if either of those can be determined at once. Otherwise a Suspense Account pending clearance, till the materials are actually issued, by debit to the specific heads of accounts or works, is operated. Stocks kept under Suspense symbolize a centralized store of inventories to be requisitioned by other departments 1 divisions, etc. Stocks under Suspense do not end with the stock-keeping department but issues of such stocks are charged as expenses of the user departments etc. which place requisition for such stocks and get them accordingly. Receipts are treated as debit entries and issues as credits. The value of stock on hand is therefore a debit balance. To control stock balance it is usual to lay down a financial limit or stock. In the Public works system of account such a financial limit is known as Reserve Stock limit. It has to be carefully decided as it means blockage of funds Monthly Summary of Stock Receipts and Issues The receipt and issue transactions of the entire stores should be abstracted in the "Summary of Stock Receipts" and the 'Summary of Indents'. These forms should be posted daily from the copies of Goods Received Sheets, and the Indents, the entries being made only in respect of values. The total value of receipts and issues as brought out in these 'summaries should be reconciled with the corresponding monthly totals of the Priced Stores Ledger (Item 7.3.7). To reconcile quantity with accounts, receipts and issues, the value of which cannot be adjusted in the accounts of the month in which the actual transactions took place, should be accounted for in the summaries under the suspense heads "Purchase" and "Miscellaneous Works Advances" respectively. A Proforma of Monthly Summary of Stock Receipts as used in CPWD is given at the end (Annexure 4). A Proforma of Monthly Summay of Indents are used in CPWD is given at the end (Annexure 5) Priced Stores Ledger An account is maintained to record the transactions relating to each item of stock day to day. This is called Priced Stores Ledger having different sections of sets of pages for 29

6 Stores Management different articles of stock with columns for receipts, issues and balances for both quantities and values. Separate Ledgers should be maintained for articles falling under each sub-head of Stock. All items of receipts and issues are entered in the Ledger from the copies of Goods Received Sheets and the Indents which are received daily. At the end of the day's posting, the balance under each article is worked out in respect of quantities as well as values. The Ledger is closed in both quantities and values at the end of each month. A few pages is reserved at the end of each Ledger for abstracting the transactions (Values only) pertaining to each article of stock. The monthly total of receipts, issues and balances is then worked out for each sub-head and a consolidated abstract prepared for all the sub-heads which should agree with the Summary of Stock Receipts and the Summary of Indents. A proforma of Priced Stores Ledger as used in CPWD is given at the end (Annexure 6) Transfer Entry Transfer entries are entries intended to transfer an item of receipt or charge from the account of a work in progress or of a regular head of account of another work. They become necessary. (a) In order to correct an error of classification in the original accounts. Sometimes it is more convenient to classify items pertaining to several heads (or works), under the single head in first instance and then classify them separately by making transfer entries. (b) In order to adjust, by debit or credit to the proper head of account (or work), an item outstanding in suspense account or under a debit or deposit work. (c). In order to bring to account certain classes of transactions which do not pass through the cash or stock account e.g., (i) for credit to 'Purchases' on account of materials received for works from sources other than stock. (ii) for credit to 'Deposits' on account of balances due to contractors on closed account. (iii) for credit to Revenue heads on account of revenue not received in cash. (iv) for original debits or credits to Remittance heads based on transactions not in cash or stock accounts e.g. transfer of tool and plant to another division / department when the value is recoverable for this. (d) In order to relieve the account of a work-in-progress of (i) items which have ceased to be debitable to the estimate for the work. (ii) suspense charges which can no longer be kept within the accounts of the work. For every transfer entry there must be a proper order by the Competent Authority. A proforma of Transfer entry order of CPWD is given at the end. (Annexure 7) SAQ 2 (a) What is the utility of maintaining Stores Ac~ount'? (b) What is the utility of Bin Cards? (c) What is the significance of Issue Rate'? (d) Find the cost of balance materials by the Weighted Average Method from the following data. Quantity (

7 I I I i STOCK TAKING Stock-taking represents complete process of verifying the quantity balances of the entire range of items held in stock. Measures to periodically count the stock is essential to check against discrepancies, deficiencies, shortages, surpluses, manipulations, mal-practice, etc. Normal periodical stock-taking is a basic requirement of stores accounting. In addition stock-taking by independent offices at irregular intervals and the counting of stores is items carried out so as to provide a built in safeguard against any tendency to pilfer, steal and take the advantage of fictitious issue, overloading, obsolescence etc. of stores. Objectives of stock-taking are : ji) Verification of accuracy of stock records. (ii) K-conciliation of value accounts with the actuals (ground realities) (iii) Unearthing the possibility of fraud, loss, theft, pilferage or fictitious issues. There are two methods of stock-taking - periodic and continuous. Periodic Stock-taking or Annual Physical Verification - covers the whole of stock at the same time at the end of a given period, usually the end of the Financial year. In this, a responsible high ranked person verifies the stock lying in store once in a year, with the store records. He has to submit report about shcrtages, excesses or damages, surpluses, obsolete and unserviceable material. The advantages of this method is that thorough checking of all the items is performed at a time and all the discrepancies are known collectively. This operation causes complete stoppages of intake 1 outflow of materials during the counting process. Continuous stock-taking or Perpetual Veriiiration - ensures physical verification of stocks at least once in every year. It is not necessary that all the stock should be checked and counted at the same time, but the date on which articles are taken on stock should be entered in the Store returns. Verification is not carried out by the person, who is the custodian or the Accounts Keeper of the Store to be verified. Persons who are conversant with the Classifications, Nomenclatures and Technique of the Stores to be verified and arc working in sufficiently senior positions, are entrusted with the Stores Verification task. Verification is made in the presence of the Authority responsible for the custody of the stores or his nominee. The result of all verifications of stock should is reported to the authority. The book balance is to be set right by the verifying officer, who treats a surplus as a receipt and a deficit as an issue with a suitable remark. The value of stores found surplus is credited at once to receipt. The value of a deficit is / debited to the suspense account pending recovery or adjustment under orders of Competent Authority. Storerr kccounting Procedure SAQ 3 Br.irtly describe your expeiirnce and the difficultizs jcu hced In Stock-taking in which you had participated. 5.5 SUMMARY In store proper account is maintained for accepted materials. The account of stores is maintained by the store-keeper in the same way as that of cash by the cashier. It is desirable to know at all times as to how much working capital is represented by stores in stock. The value of stock is also needed to be shown in balance sheet as an asset. Value of the stock at the start and at the end of the accounting year is used in preparing profit and loss account. Store thus plays an important role in smooth functioning of an industry. The proper store account consists of information regarding different types of materials stocked, quantity and vlaue of each material, their recording time and quantity as well as

8 cost of maintenance of stores. All materials received in the stores are recorded by the Railway Receipt (RIR) or Lorry Receipt (LIR) or Good Receipt(G1R). Materials in the stores are classified as raw materials, work in progress, finished goods, ready made components, consumables and scraps. Materials are coded for their quick identification. Priced vocabulary of stores consists of up-to-date records of materials available in the store as per their classification. The main account records of stores are Bin Cards, R/R or UR or G/R, Indent, summary of stock receiptlissue, Priced Stores Ledger, transfer entries and suspense accounts. Stock-taking is complete verification of stock entry in the store. In this unit you have learnt the importance and the objectives of stores accounting. After going through this unit, now you are able to understand the various terms used in store account. You are also now familiar with main records of the stores. With growth of technology, use of computer software to maintain store account can be of great help. Use of computer makes the store accounting job much simpler and quicker. 5.6 KEY WORDS Stock GR Note Bin Card Indent Materials at Site (MAS) Account Reserve of Stock Material Cost Stock Taking : Goods, items and materials kept in stores. : The note prepared after scrutiny of material received. : A document showing the current status of the item in the stores. : Requisition for material by the user. : When the materials are directly purchased or issued direct to the work, their costs are either changed direct to work or debited to the suspense head "Materials", when the cost is debited direct to suspense head "Materials its account is known as "Materials at Site (MAS) Account". This account is maintained only for major works, where large quantity of materials are used. : For avoiding delay in the manufacturing and procuring various materials, items may be collected and kept in reserve. As these items of stores can not be debited at once to any specific work they may be used, they are accounted for in a suspense account of stock. : Includes material price, freight charges insurance, and taxes. : The complete process of verifying the quantity balances of the entire range of items held in stock. 5.7 ANSWERS TO SAQs SAQ 1 (a) The advantages of good coding system are (i) avoid use of long description of items, (ii) prevent duplication of items, (iii) forms a basis for exact documentation, and (iv) serves better stock control account. (b) Refer to SAQ 2 (a) Refer (b) (i) At any time it indicates the stock balance of any material in store. (ii) It indicates the receipts and issues already done. (iii) It helps in stock-taking. (iv) It helps to control to stock limit and re-ordering.

9 (c) (d) It indicates the total cost of procurement and storage of materials soihat the cost of finished product could be correctly ascertained. Balance Stores Accounting Procedure Date Quantity Average Price Value (B.) (B ,20, ,45, , / ,65, ,270 SAQ 3 Note : The average price for any issue would be the last / prevalent average price. For finding the average issue price, the quantity and value columns are first filled in the balance statement and from this the issue price is calculated. Briefly describe the difficulty, including the non-cooperation of store people, if any, in counting due to haphazard stocking, incomplete Bin Cards, etc.