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It is a common phenomena in warehousing. But you need to address such discrepancies in two ways
1) Correct the variance by passing the stock JV - off course through approval mechanism.
2) Arresting the causes of variance / mismatch - the causes may be as under
a) under receipt - receiving less stock as against mentioned in GRN
b) Over dispatch - dispatch more stcok as against dispatched invoice
c) Pilferage - security risk
You need have a check on all above aspect. You can implement the practice of cycle count at least for A category product.
You need to improve the stock telling system while receiving and dispatching.
As mentioned the Physical Inventory not matches with Books inventory that known as Inventory Variance. The Inventory variance can be due to some reasons such as
The above mentioned are some of the cause which lead for difference / variance in the Physical inventory. This problem can be rectified by the Cycling Inventory Count. Now the cycling count can be done as per Inventory variance & Value basis ie
After the cycling count investigate on the product shrinkage level and than accordingly organisation nee to make action plan to rectify or correct the process. So in future the organisation can avoid such inventory loss and variance.
After identifying the Variance in inventory we need to correct it by Inventory adjustment in system. to match the physical inventory with system inventory. If we not correct the variance it will lead to wrong impression in all the Inventory related reports.
Hope this might helpful. Thanking you have a great day.
Happy to Help
Rohit Varde
In case of shortage in inventory
If there is any shortage in the inventory, then a management approval is required before putting any adjustment in the books of accounts.In case of finished goods any claim by the company to its customers for any excess(wrong) delivery to be checked.The entry will be:
Inventory dj./Loss/ (Excess/Shortage) Account Dr.xxx
Inventory Account Cr.xxx
In case of excess in inventory
1.First check any claims from customers regarding short receipt by them in case of Finished goods.
2.If there is no claim from customers then following entry is to be passed, same entry will be made for raw or packing material:
Inventory Account Dr.xxx
Inventory dj./Loss/ (Excess/Shortage) Account Cr.xxx
This is a wide range question. you cannot just ask if the physical not matching the system and how to adjust it. if we are talking about variances we should specify first, the count is in showroom or warehouse and what is the nature of the items that had the variances. then, these variances is it plus or minus compared to the system. if it is plus there are several reasons we have to investigate it such as ( physical inventory that happened in the current year is it accurate or not!!!, then we have to investigate if the count that happened in the previous year was it accurate or not since the variances maybe from the year before, etc....). If it is minus then we are talking now about shortage or shrinkage and there are many procedures to investigate shrink by putting plan and investigation for the possible causes then to work on it and as I mentioned above all depends on the nature of the items counted and the store or warehouse. so it is a wide range question you cannot summarize it simply that. after you do all your steps and investigations and you made sure from these steps and investigation, a reconciliation should take place in terms of the physical and system records to match both. you should not forget that your mission is not done here after the reconciliation is done. you should follow up your system and physical all over the year and as per the categories and the items nature to make sure that your records are correct during the year so you will reach your end of year in clear and healthy stock. hope my answer helped you knowing that it is only few points for that we should do and there are a lot of steps and procedures to do and all depends on the nature of items and store or warehouse because some times the nature of item can lead as well to some routes by itself.
Normally, it has to be investigated properly by Warehouse team with a Report & it needs to be Approved by Management. If it's theft or lost internally, the all concern persons has to owe the liability. If it's proved that lost due to external, it needs to be addressed to your Insurance Agent ASAP & needs to claim. Based on these scenarios, you can write-off / Issue Debit Note or Credit the Insurance Claim value.
Firstly check the internal control system of the warehouse.i.e., who has the authorization to receive or remove the stock from the warehouse, Is GRVs are properly maintained,what is the expiry dates of the stock,what is the re-order period of the stock,who has authority to issue a purchase order,what is the frequency of the stock taking,who is responsible for the stock taking duty, Is stock taking duty is shuffled among different people over period of time,if not what are the reasons. is the stock is properly categorized depending on the value of the item?.
This are the check points to be ticked. coming to the question, there may be several reasons for the mismatch of the stock with the book of accounts. Namely
1) Material received in system(SRV) but not yet received physically and vice versa.
2) Material issued from the warehouse but not recorded in the books of accounts and vice versa.
3) Samples issued to salesmen was not recorded in the book of accounts.
4) Expired stock removed from the shelves without proper authorization.
Investigating in the above mentioned issues will give the ample reasons for the mismatch and should be adjusted accordingly as per the result of investigation and if the difference is still exist after proper investigation then the issue must be taken to the senior management and stock should be adjusted.
The company must do reconciliation. Some of the steps are as follows:
1. Recount the inventory.
2. Match the units of measure.
3. Verify the part number.
4. Look for missing paperwork.
5. Examine the scrap.
6. Investigate possible customer ownership.
7. Investigate possible supplier ownership.
8. Investigate backflushing records.
9. Accept the variance. If all steps still results to a variance, then the company must adjust the inventory record to match with the physical count.
If the physical count is higher than what is recorded, then the company must record the variance as debit to inventory account and credit to cost of goods sold . On the other hand, if the physical count is lower than what is recorded, then the variance must be recorded as debit to cost of goods sold and a corresponding credit to inventory account.
we have to go through all manual item carts agaist the soft copy which is entered to the system
find last identical numbers between last physical counts and recorded balance.
if not
we have to double check the balance in ware house against the final products produced in the same time.
Kindly recheck the stock in order to avoid huge mistake in recording revenue or expenses.
If you find them appropriate, then you can making the following adjsutment entries.
If the Physical quantity is less than recorded in books, u can expenses it out as scrap or sold for free.
If the physical quantity is more that recorded in books, u can show as an sample pcs received from supplier.
Any of the above entry should be reflected as a part of adjustment entry, recording such entires on regular basis reflect the control system of stock coming in and going out is not correct.
All the adjustment entry should be based on official approval from the owner.
Check from the gate passes if inventory near reporting period has been physiaclly moved out but sales in the books has not been recorded by mistake or intentionally.
Inventory reconciliation is an extremely important part of cycle counting, since the warehouse staff uses it to continually update the accuracy of its inventory records. Inventory record accuracy is needed to ensure that replacement items are ordered in a timely manner, that inventory is properly valued, and that parts are available for sale or production when needed.
