Thread: Off-Topic: Accounting question

Off-Topic: Accounting question

From
Mike Mascari
Date:
Hello.

I have a quick accounting question. In the evaluation of Cost of
Goods Sold, one can use 3 different methods for evaluating
inventory: LIFO, FIFO, or Average Warehouse cost. In an application
which allows the user to adjust inventory quantities, if the user
discovers that the physical inventory in a cycle count is less than
the electronic accounts, its easy to attribute the missing inventory
as shrinkage. But what if the user discovers an on-hand quantity
that is greater than the electronic accounts? For example:

Jan 01, 2001 - Bought 1 Pencil for $3.00
Jan 03, 2001 - Bought 1 Pencil for $3.50
Jan 21, 2001 - Bought 1 Pencil for $4.50

Total:

3 Pencils
$11.00

However, when the cycle count is performed on Jan 31, 2001, 2 more
pencils are discovered. What do Generally Accepted Accounting
Principles say regarding the value of the 4th and 5th pencils? If a
sale of a pencil occurs on Feb 01, 2001, using LIFO, what is the
COGS?

Oliver?

Sorry for the off-topic question. Any pointers would be greatly
appreciated.

Mike Mascari
mascarm@mascari.com

Re: Off-Topic: Accounting question

From
"Aasmund Midttun Godal"
Date:
this is not my field, I have read many books, and I still don't understand anything about accounting. However I do
believetwo things regarding your issue. 

1. If you have too little of anything (money inventory or otherwise) you would not reduce the original input (I don't
knowwhat you mean by shrinkage but I assume that is what you meant), but rather introduce an adjustment record (as I am
norwegianI do not know the proper english words for this). 
2. You can adjust up as well. To illustrate it:

Product | Quantity | Date           | Comment
Shoes   | 100      | Juli 1. 2001   | Received shipment
Shoes   | -1       | Juli 4. 2001   | Sold to customer
Shoes   | -2       | Juli 5. 2001   | Sold to customer
Shoes   | -1       | Juli 7. 2001   | Sold to customer
Sum     | 96
Shoes   |  2       | August 1. 2001 | Stock-Counting (98 shoes)
Sum     | 98

This may not be what you wanted to know. If you have any good tips on books or websites about accounting please let me
know!

Regards,

Aasmund.



On Fri, 02 Nov 2001 22:31:05 -0500, Mike Mascari <mascarm@mascari.com> wrote:
> Hello.
>
> I have a quick accounting question. In the evaluation of Cost of
> Goods Sold, one can use 3 different methods for evaluating
> inventory: LIFO, FIFO, or Average Warehouse cost. In an application
> which allows the user to adjust inventory quantities, if the user
> discovers that the physical inventory in a cycle count is less than
> the electronic accounts, its easy to attribute the missing inventory
> as shrinkage. But what if the user discovers an on-hand quantity
> that is greater than the electronic accounts? For example:
>
> Jan 01, 2001 - Bought 1 Pencil for $3.00
> Jan 03, 2001 - Bought 1 Pencil for $3.50
> Jan 21, 2001 - Bought 1 Pencil for $4.50
>
> Total:
>
> 3 Pencils
> $11.00
>
> However, when the cycle count is performed on Jan 31, 2001, 2 more
> pencils are discovered. What do Generally Accepted Accounting
> Principles say regarding the value of the 4th and 5th pencils? If a
> sale of a pencil occurs on Feb 01, 2001, using LIFO, what is the
> COGS?
>
> Oliver?
>
> Sorry for the off-topic question. Any pointers would be greatly
> appreciated.
>
> Mike Mascari
> mascarm@mascari.com
>
> ---------------------------(end of broadcast)---------------------------
> TIP 2: you can get off all lists at once with the unregister command
>     (send "unregister YourEmailAddressHere" to majordomo@postgresql.org)

Aasmund Midttun Godal

aasmund@godal.com - http://www.godal.com/
+47 40 45 20 46

Re: Off-Topic: Accounting question

From
"Aasmund Midttun Godal"
Date:
this is not my field, I have read many books, and I still don't understand anything about accounting. However I do
believetwo things regarding your issue. 

1. If you have too little of anything (money inventory or otherwise) you would not reduce the original input (I don't
knowwhat you mean by shrinkage but I assume that is what you meant), but rather introduce an adjustment record (as I am
norwegianI do not know the proper english words for this). 
2. You can adjust up as well. To illustrate it:

Product | Quantity | Date           | Comment
Shoes   | 100      | Juli 1. 2001   | Received shipment
Shoes   | -1       | Juli 4. 2001   | Sold to customer
Shoes   | -2       | Juli 5. 2001   | Sold to customer
Shoes   | -1       | Juli 7. 2001   | Sold to customer
Sum     | 96
Shoes   |  2       | August 1. 2001 | Stock-Counting (98 shoes)
Sum     | 98

This may not be what you wanted to know. If you have any good tips on books or websites about accounting please let me
know!

Regards,

Aasmund.



On Fri, 02 Nov 2001 22:31:05 -0500, Mike Mascari <mascarm@mascari.com> wrote:
> Hello.
>
> I have a quick accounting question. In the evaluation of Cost of
> Goods Sold, one can use 3 different methods for evaluating
> inventory: LIFO, FIFO, or Average Warehouse cost. In an application
> which allows the user to adjust inventory quantities, if the user
> discovers that the physical inventory in a cycle count is less than
> the electronic accounts, its easy to attribute the missing inventory
> as shrinkage. But what if the user discovers an on-hand quantity
> that is greater than the electronic accounts? For example:
>
> Jan 01, 2001 - Bought 1 Pencil for $3.00
> Jan 03, 2001 - Bought 1 Pencil for $3.50
> Jan 21, 2001 - Bought 1 Pencil for $4.50
>
> Total:
>
> 3 Pencils
> $11.00
>
> However, when the cycle count is performed on Jan 31, 2001, 2 more
> pencils are discovered. What do Generally Accepted Accounting
> Principles say regarding the value of the 4th and 5th pencils? If a
> sale of a pencil occurs on Feb 01, 2001, using LIFO, what is the
> COGS?
>
> Oliver?
>
> Sorry for the off-topic question. Any pointers would be greatly
> appreciated.
>
> Mike Mascari
> mascarm@mascari.com
>
> ---------------------------(end of broadcast)---------------------------
> TIP 2: you can get off all lists at once with the unregister command
>     (send "unregister YourEmailAddressHere" to majordomo@postgresql.org)

Aasmund Midttun Godal

aasmund@godal.com - http://www.godal.com/
+47 40 45 20 46

Re: Off-Topic: Accounting question

From
"Oliver Elphick"
Date:
Mike Mascari wrote:
  >I have a quick accounting question. In the evaluation of Cost of
  >Goods Sold, one can use 3 different methods for evaluating
  >inventory: LIFO, FIFO, or Average Warehouse cost. In an application
  >which allows the user to adjust inventory quantities, if the user
  >discovers that the physical inventory in a cycle count is less than
  >the electronic accounts, its easy to attribute the missing inventory
  >as shrinkage. But what if the user discovers an on-hand quantity
  >that is greater than the electronic accounts? For example:
  >
  >Jan 01, 2001 - Bought 1 Pencil for $3.00
  >Jan 03, 2001 - Bought 1 Pencil for $3.50
  >Jan 21, 2001 - Bought 1 Pencil for $4.50
  >
  >Total:
  >
  >3 Pencils
  >$11.00
  >
  >However, when the cycle count is performed on Jan 31, 2001, 2 more
  >pencils are discovered. What do Generally Accepted Accounting
  >Principles say regarding the value of the 4th and 5th pencils? If a
  >sale of a pencil occurs on Feb 01, 2001, using LIFO, what is the
  >COGS?
  >
  >Oliver?

I think it depends on how you account for the difference.  Your
possibilities are:

1.  Ignore the discrepancy and lose the surplus  (OK with pencils
perhaps, but not with gold bars!)

2.  Assume that there has been an error in issuing stock - some other
item may show a deficit of 2; if that seems a likely source of error
do a journal to correct both items.

3.  Introduce the extra stock by a transaction; this will either be (a) at
zero cost (which will affect your averages) or (b) at an appropriate cost
such as most recent, which will require a suspense account entry to
balance it.

Realistically, option 1 will cause least administrative cost and is
most likely to be used even for high-value items, unless staff are
exceptionally honest.  Option 2 is nice if a suitable deficit can be
identified.  Option 3(a) removes the problem at the cost of some
disturbance to averages and option 3(b) transfers the problem to the
suspense account, from which it will effectively be lost at yearend.

If I were auditing such items, I would be interested to see if there
were any pattern to them that might suggest a programming error, or
some other irregularity.

I'm not aware of any official directives on this subject; I think that
the situation does not usually arise (deficits, on the other hand,
are more common...).    But I'm not really up-to-date on accountancy
these days.



--
Oliver Elphick                                Oliver.Elphick@lfix.co.uk
Isle of Wight                              http://www.lfix.co.uk/oliver
GPG: 1024D/3E1D0C1C: CA12 09E0 E8D5 8870 5839  932A 614D 4C34 3E1D 0C1C

     "Lo, children are an heritage of the LORD; and the
      fruit of the womb is his reward."        Psalms 127:3



Re: Off-Topic: Accounting question

From
Mike Mascari
Date:
Oliver Elphick wrote:
>
> Mike Mascari wrote:
>   >I have a quick accounting question. In the evaluation of Cost of
>   >Goods Sold, one can use 3 different methods for evaluating
>   >inventory: LIFO, FIFO, or Average Warehouse cost. In an application
>   >which allows the user to adjust inventory quantities, if the user
>   >discovers that the physical inventory in a cycle count is less than
>   >the electronic accounts, its easy to attribute the missing inventory
>   >as shrinkage. But what if the user discovers an on-hand quantity
>   >that is greater than the electronic accounts? For example:
>   >
>   >Jan 01, 2001 - Bought 1 Pencil for $3.00
>   >Jan 03, 2001 - Bought 1 Pencil for $3.50
>   >Jan 21, 2001 - Bought 1 Pencil for $4.50
>   >
>   >Total:
>   >
>   >3 Pencils
>   >$11.00
>   >
>   >However, when the cycle count is performed on Jan 31, 2001, 2 more
>   >pencils are discovered. What do Generally Accepted Accounting
>   >Principles say regarding the value of the 4th and 5th pencils? If a
>   >sale of a pencil occurs on Feb 01, 2001, using LIFO, what is the
>   >COGS?
>   >
>   >Oliver?
>
> I think it depends on how you account for the difference.  Your
> possibilities are:
>
> 1.  Ignore the discrepancy and lose the surplus  (OK with pencils
> perhaps, but not with gold bars!)
>
> 2.  Assume that there has been an error in issuing stock - some other
> item may show a deficit of 2; if that seems a likely source of error
> do a journal to correct both items.
>
> 3.  Introduce the extra stock by a transaction; this will either be (a) at
> zero cost (which will affect your averages) or (b) at an appropriate cost
> such as most recent, which will require a suspense account entry to
> balance it.
>
> Realistically, option 1 will cause least administrative cost and is
> most likely to be used even for high-value items, unless staff are
> exceptionally honest.  Option 2 is nice if a suitable deficit can be
> identified.  Option 3(a) removes the problem at the cost of some
> disturbance to averages and option 3(b) transfers the problem to the
> suspense account, from which it will effectively be lost at yearend.
>
> If I were auditing such items, I would be interested to see if there
> were any pattern to them that might suggest a programming error, or
> some other irregularity.
>
> I'm not aware of any official directives on this subject; I think that
> the situation does not usually arise (deficits, on the other hand,
> are more common...).    But I'm not really up-to-date on accountancy
> these days.

Thank you. We're writing some software to maintain inventory for a
retail business and allow for physical counts using Windows CE
devices (talking to a PostgreSQL database, of course). Since the
retailer has the option of using LIFO, FIFO, or Avg. Warehouse cost,
we'll probably just write code to allow them to decide what to do
with the discrepancy.

Thanks again,

Mike Mascari
mascarm@mascari.com

>
> --
> Oliver Elphick                                Oliver.Elphick@lfix.co.uk
> Isle of Wight                              http://www.lfix.co.uk/oliver
> GPG: 1024D/3E1D0C1C: CA12 09E0 E8D5 8870 5839  932A 614D 4C34 3E1D 0C1C
>
>      "Lo, children are an heritage of the LORD; and the
>       fruit of the womb is his reward."        Psalms 127:3