Inventories
UC Accounting Manual
II. General
I-581 (8/1/73)
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INVENTORIES
"The primary basis of accounting for inventories
is cost, which has been defined generally as the
price paid or consideration given to acquire an
asset. As applied to inventories, cost means in
principle the sum of the applicable expenditures
and charges directly or indirectly incurred in
bringing an article to its existing condition and
location."
--American Institute of Certified
Public Accountants, Bulletin 43,
Chapter 4
I. INTRODUCTION
The chapter sets forth accounting policy and controls
for University supply inventories. Business and
Finance Bulletin BUS-54 focuses primarily on the
operating considerations of supply inventories.
II. DEFINITIONS
Accounting entries and procedures included in this
chapter cover the two categories of inventories defined
below:
A. SUPPLY INVENTORIES
1. For Issue Within the University.
Inventories included in this category are central
stores, departmental storerooms, production
facilities, etc., and similar functions in those
cases where the combined inventory value of new
and unissued material in a department exceeds
$50,000 at one or more locations on a campus, or
exceeds $50,000 at an off-campus location.
(Reference should be made to BUS-54 for greater
detail.) Those supply inventories which serve or
are related to a single organizational unit are to
be established within the account structure of
those units. If the recharges to other
organizational units exceed 25% of the recharge
volume (in number of transactions), a separate
activity within the function "Institutional
services" will be established.
B. OTHER INVENTORIES
1. For Use Primarily Outside the University.
Continuing Education of the Bar Publications,
Agricultural Extension Publications, other
publications inventories, etc. are examples of
types of inventories in this classification.
Inventories in this category valued in excess of
$50,000 are to be established within the account
structure of those units.
2. For Use Primarily Inside the University.
Regularly established business type enterprises
having supply inventories will continue to account
for their inventories within their respective
functions. Included in this category are
maintenance and Operation of Plant, Hospital
inventories, and Student Health Center Hospitals.
The very nature of these types of operations
precludes their classification as Institutional
Services functions.
III. INVENTORY VALUATION
Inventory values are to be based on cost. If cost
cannot be readily determined, any other method
consistently applied which reflects renewable
valuation should be used. If at some future date
a department process to change the method of
developing the inventory value, the reasons for
changing should be fully documented by the
department and forwarded to the accounting officer
for approval.
IV. ACCOUNTING ENTRIES
The following entries pertain to establishing
inventories:
A. FINANCIAL
1) Dr. Inventories X-114XXX-XXXXX XXXXX
Cr. Unexpended Balances Specific Funds
X-119850-XXXXX-0-0120 XXXXX
To establish a supply or other inventory based on
a physical inventory taken on ________________ and
to establish a fund balance to properly account
for this inventory.
2) Dr. Department Expense
X-XXXXXX-XXXXX-7-7200 XXXXX
Cr. Inventories X-114XXX-XXXXX XXXXX
To establish the inventory during the fiscal year
in the appropriate expense account. (Subaccount 7
is generally used as the Cost of Goods Sold
subaccount, although subs 3 and 5 may also be
used.)
3) At June 30 of each year the following
reversing type of financial journal is
prepared:
Dr. Inventories
X-114XXX-XXXXX XXXXX
Cr. Department Expense
X-XXXXXX-XXXXX-7-7200 XXXXX
To record the inventory value in the above
department based on the physical inventory taken
6/30/XX. Some campuses lien the inventory amount
simultaneously with this financial entry. This
method allows for easy reappropriation on the
closing worksheets.
Note: Concerning entries 1, 2, and 3 above--if
the initial inventory is taken during
the fiscal year, entries 1 and 2 are
prepared simultaneously and entry 3 is
prepared the subsequent June 30. If the
initial inventory is taken at June 30,
only entry 1 is prepared for that fiscal
year, and entry 2 will be prepared for
the new year (July or August entry).
Also, entry 3 (reversing) will not be
used until the
* following June 30. Some enterprises
prefer to reflect their inventory
throughout the year in the same manner
as a June 30; therefore item (3) above
would be recorded as a permanent entry
rather than a reversing type entry.
Each year the entry is increased or
decreased based on the actual inventory
count.
B. BUDGETARY
1) Dr. Unexpended Balances Specific Funds
X-119850-XXXXX-0 XXXXX
Cr. Department Expense
X-XXXXXX-XXXXX-7 XXXXXX
To appropriate funds to cover inventory during the
fiscal year.
2) Dr. Department Expense Recharges
X-XXXXXX-XXXXX-9 XXXXX
Cr. Department Expense
X-XXXXXX-XXXXX-1,2,3,4,5,6,7 XXXXX
To establish an estimate of recharges to other
funds and to appropriate the estimate to various
subs to cover salaries, supplies and expense and
costs of the goods to be recharged.
Inventories established in the foregoing manner
have been built up over the years from several
fund sources and expensed in the year purchased.
No attempt should be made to credit these prior
funding sources, except as required by certain
contracts and grants. See BUS-54, section IX, for
specific guidelines.
V. ACCOUNTING CONTROL
Business and Finance Bulletin BUS-54 indicates that
operating procedures are to be developed and maintained
by the materiel manager for supply inventories within
the guidelines of that bulletin.
Because of the division of responsibilities for
operating and accounting procedures and controls, and
particularly since these procedures and controls are
not mutually exclusive, the materiel manager and
accounting officer shall coordinate their efforts and
work closely together whenever inventory procedures are
initiated for changed.
In the development of operating procedures the
following accounting controls should be considered and
those that are reasonable in the circumstances should
be included. Some of the accounting controls overlap
operating controls referred to in Business and Finance
Bulletin BUS-54.
1) A signed report of inventory will be sent to the
accounting office.
2) Accounting control over inventory values will be
maintained by the accounting office.
3) Differences between book inventory and physical
inventory values will be determined; the necessary
adjustments will be noted in the accounting records,
and the write-off or gain will be reported in any
statements prepared for management.
4) Significant differences discovered between physical
inventory counts and perpetual inventory records will
be investigated by supervisory personnel. Unresolved
differences will be reported to the next higher
administrative level and to the accounting officer.
5) Significant differences between physical inventory
and book inventory valuations will be investigated by
the accounting office.
6) Someone independent of the inventory operation
should verify physical counts, prices, extensions, and
totals. This may be accomplished by sampling
techniques. The verifiers should report results of
verification tests directly to the materiel manager and
the accounting officer.
VI. RESPONSIBILITIES
Chancellors are responsible for ensuring that physical
inventories of departmental supply inventories are
conducted in accordance with the guidelines set forth
by Business and Finance Bulletin BUS-54 and this
Accounting Manual chapter.
Accounting officers are responsible for establishing
accounts and recording entries as appropriate to
establish accounting control over departmental supply
inventories and to record these inventories based on a
physical count, at June 30 of each fiscal year.
Since operating procedures and controls and accounting
procedures and controls are not mutually exclusive, the
coordinate efforts of the accounting officer and
materiel manger are required in providing procedural
guidance to all concerned.
VIII. REFERENCE
The publication listed below proves the fundamental
guidelines for maintenance and control of supply
inventories within the University.
Business and Finance Bulletin:
BUS-54 Operating Policy for University
Supplies Inventories
____________________________
Historically Note: Original Accounting Manual chapter first
published 06/01/73. Analysts: Gerry Plaggert and Frank Wick.
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