Inventory is Definition, essence and features

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Raw materials taken from natural conditions undergo various types of processing before they reach the final consumer in the form of a finished product. It is moved, combined with other materials. Moving along the chain, raw materials are delayed from time to time, waiting for their turn to enter the next stage of the life cycle.

What is inventory?

These are products that are at different stages of the life cycle. It consists of various goods waiting in line for entry into the process of individual or shop consumption. If the chain of participants involved in the transformation of primary raw materials into finished products and their promotion functioned as one conveyor, downtime could be significantly minimized. But in reality, it is impossible to do without waiting.

Costs

Inventories are objects, the creation of which involves certain costs. Among the main types of costs associated with this, one cannote:

1. Frozen funds.
2. Expenses for the maintenance of premises specially equipped for the processing of raw materials.
3. Salary of employees of the enterprise.
4. Constant risk of theft, damage.

An enterprise always incurs costs by creating inventory. This, however, does not mean that the absence of raw materials will be profitable. It is necessary, otherwise the company will suffer losses. The main losses that an organization incurs when there is no inventory are costs from:

1. Equipment downtime.
2. The lack of finished goods in warehouses when there is a demand for it.
3. Purchases of small batches of products at a higher cost.

Despite the fact that the formation of a resource base is always associated with costs, enterprises are forced to create it. If the organization is out of inventory, this will lead to even greater losses.

Relevance of the problem

There are several reasons why inventory is created. This is:

1. Probability of fluctuating demand. In particular, we are talking about an unpredictable decrease in the intensity of the outgoing material flow. Demand for products is not constant. Its fluctuations are not always predictable. In this regard, if the stock of material resources is insufficient, the enterprise may be unable to meet effective demand. In other words, the company risks being left without products on the counter and letting customers go without purchases.
2. Seasonal changes in demand for a number of goods. As a rule, this situation is typical for agricultural products. For example, potatoes are harvested in early autumn. Meanwhile, this product goes through the commodity distribution chain year-round. Accordingly, at some stage, a material reserve should be formed. This is possible due to discounts for the purchase of large batches of products. In fact, for this reason, many citizens keep a relatively large amount of food at home.
3. Speculation. The cost of some goods may increase significantly. The company that can predict this jump will create a material reserve. This will allow you to subsequently make a profit when the cost of the goods changes.

Benefits of MPZ

Industrial organization (PO) inventory must manage competently, to prevent their irrational spending. The presence of MPZ allows you to immediately serve consumers. There are several ways to complete a buyer's order:

1. Create desired item.
2. Purchase a product from another business.
3. Provide the product immediately from among those in stock.

The last option is considered the most expensive. This is due to the cost of holding inventory. Nevertheless, often in a competitive environment, the ability to immediately satisfy the needs of the buyer can become decisive in the market struggle. Equally important is the availability of spare parts for equipment in warehousesenterprises. Machine breakdowns can lead to long downtimes for production lines. This is a very big problem, especially for those enterprises where the process is ongoing. Stopping production will be quite expensive. In this regard, it is advisable to keep a certain stock of parts and mechanisms that can quickly replace elements that have failed. The presence of the MPZ greatly simplifies the management of the enterprise. In particular, this refers to the creation of stocks of semi-finished products at different stages of the process within the shops. Their presence allows to reduce the requirements for the level of coordination of operations in different areas. Accordingly, the costs of managing production processes are also reduced.

Documentation

All operations carried out by the enterprise must be confirmed on paper. Primary documentation is used for accounting. It must be properly drawn up, have all the required details, signatures of responsible employees. When accepting the institution's inventories, the warehouse manager checks whether the actual number of objects corresponds to the information in the accompanying documents provided by the supplier. If there are no discrepancies, a receipt order is issued. It is made up in one copy. If a discrepancy is revealed (regrading, surplus, shortage), there will be no accompanying documents, an act f. M-71. This document is formed in 2 copies. It acts as a credit order and the basis for clarifying settlements with the enterprise -supplier.

Inventory Accounting

All primary documentation is subject to the control of responsible employees. The duties of the accounting department include control over the legality, expediency, and correctness of registration of operations for the movement of inventory. After verification, the primary documentation is subject to taxation, that is, the amount of raw materials is multiplied by the cost. In practice, several methods of accounting for inventory are used.

Options for displaying information

Information from primary documentation is entered into special cards. They can be opened for each variety and type, in accordance with the volume of receiving and spending valuables. The difference between these cards and warehouse documents is that the indicators are reflected not only in kind, but also in monetary terms. At the end of the month, based on the information, quantitative-sum, varietal, turnover analytical statements are formed. The information from them is checked against the indicators of the corresponding synthetic accounts and information from warehouse cards. Another way of accounting is to group all receipts and expenditures by item numbers. At the end of the month, responsible employees perform the calculation and record the results of the receipt and expenditure of each type of inventory in the turnover sheets. In them, information is reflected in natural and monetary indicators for each warehouse separately, for synthetic accounts and sub-accounts opened for them. This method significantly reduces the complexity of the process. In this case, there is no needfilling out analytical cards.

Balance method

This way of keeping records is considered more progressive. In this case, varietal warehouse indicators are not duplicated either in separate analytical cards or in turnover sheets. Registers are documents maintained in warehouses. Every day or at other fixed times, the accountant checks the correctness of the records made by the storekeeper and certifies them with a signature. At the end of the month, the warehouse manager, and in some cases the supervisory officer, transfers the quantitative indicators of the balances on the first day of the period for each item number from the warehouse card to the balance sheet (without income, turnover and expense). After verification and confirmation by signature, it is transferred to the accounting department. Here, inventory balances are fixed at fixed prices and their totals are displayed for individual groups and for the entire warehouse as a whole.

Disposal of MPZ

Write-off of inventories can be carried out at the average actual cost of a group of objects or a unit of property. Enterprises can use both of these methods. However, the method provided for the IPM group is applied continuously throughout the year. The procedure established for determining the value of valuables remains unchanged throughout the reporting period. At the actual price of each unit, precious metals, stones and other non-fungible items are written off.

Important moment

Whenwriting off the MPZ, special attention should be paid to registration. The natural loss of property is shown in accounting on the basis of acts drawn up in the prescribed manner. The disposal of valuables due to theft, losses, shortages is also reflected in accordance with the documents. At the same time, the guilty are presented with amounts to be recovered. Municipal and state organizations use an act on the write-off of inventories to reflect information. This document acts as the basis for making entries in the reporting on the disposal of valuables from accounts.