A surplus found in an inventory count: at what value and with what journal entry is it taken onto the books?
The warehouse holds more goods than the book says. This is not a gift but a sign of an error in the records. What to check before taking a surplus onto the books, which account is used, and a shoe shop example.
The count at the warehouse of the "Charm Qadam" shoe shop is finished. According to the book there should have been 40 pairs of the "Yengil" sneaker, but 46 pairs are standing on the shelf. Salesperson Sevara is pleased: "It's not a shortage, it's a surplus!" Accountant Otabek thinks differently: if there are 6 extra pairs, then somewhere a document was not written or was written wrongly. This is also an error, just in the opposite direction.
What is checked before a surplus is taken onto the books?
Some "surpluses" are not really surpluses. To separate them out, NAS No. 19 provides the basis for four checks:
| Check | Question | Basis |
|---|---|---|
| Explanation of the person with material responsibility | Was an item name mixed up or a line skipped? The explanation is accepted before the warehouse is opened | NAS No. 19, paragraph 19 |
| Goods received during the count | Are they listed separately on the "Inventories received during the inventory count" sheet? | Paragraph 39 |
| Goods of another organization | Are goods accepted for safekeeping on a separate sheet? They are not your surplus | Paragraphs 16, 41 |
| Regrading | Was there a shortage in one grade and a surplus in a similar neighbouring grade? | Paragraphs 9, 10, 69 |
About regrading (issuing one grade in place of another): the standard provides for offsetting the shortage and the surplus from regrading against each other. Such proposals are drawn up by the working commission together with the accounting department (paragraph 10), and their validity is checked by the standing commission (paragraph 9). The natural loss norm is also applied only after this offsetting (paragraph 69).
At what value and where is a surplus recorded?
- In the comparison statement, the value of the surplus is shown at the value in the accounting records (NAS No. 19, paragraph 68)
- The surplus is taken onto the books and credited to the organization's financial result, after which the causes of the surplus and the persons at fault are identified (paragraph 69)
- NAS No. 4 states this more precisely: taking the value of surplus inventories onto the books is reflected as other operating income (paragraph 92). In the chart of accounts this is 9390 "Other operating income"
- The result is reflected in the accounts of the month in which the count was completed (NAS No. 19, paragraph 70)
Depending on where the surplus is found, what journal entry is made?
| Where the surplus was found | Debit | Credit | Source (NAS No. 21) |
|---|---|---|---|
| Goods and containers in the warehouse | 2910–2990 | 9390 | Paragraph 154, line 7 |
| Finished goods in the warehouse | 2810 | 9390 | Paragraph 141, line 5 |
| Materials in the warehouses of primary and auxiliary production, service facilities and general production, work in progress | 2010, 2310, 2510, 2710 | 9390 | Paragraph 405, line 10 |
Example: the "Charm Qadam" shop
Amounts are hypothetical. Otabek went through the four checks: 1. Before the warehouse was opened, Sevara reviewed the count sheet again: the name and size were recorded correctly 2. No goods arrived during the count 3. There are no goods of another firm in the warehouse 4. There was no shortage in a similar model of the "Yengil" sneaker, so this is not regrading
So the 6 pairs are a genuine surplus. The value in the records is 180 000 soum per pair:
6 × 180 000 = 1 080 000 soum
| Transaction | Debit | Credit | Amount, soum |
|---|---|---|---|
| Surplus goods found in the inventory count taken onto the books | 2910 | 9390 | 1 080 000 |
In the same month a count was also held in the shop's small sewing workshop (a primary production workshop): 25 metres of lining leather not in the records were found, with a value in the records of 26 000 soum per metre. 25 × 26 000 = 650 000 soum.
| Transaction | Debit | Credit | Amount, soum |
|---|---|---|---|
| Surplus materials found in the workshop taken onto the books | 2010 | 9390 | 650 000 |
At the end of the month account 9390 holds a total of 1 080 000 + 650 000 = 1 730 000 soum of other operating income.
Taking it onto the books is not the end of the job. Paragraph 69 also requires the cause and the person at fault to be identified. Leafing through the warehouse card, Otabek found that last month an issue document had been written for 6 pairs of the "Yengil" sneaker to be sent to another branch, but because the truck did not come, the goods had actually stayed in the warehouse. This is a gap in document flow: from now on the issue document is executed on the day the goods are actually dispatched.
Checklist when a surplus is found
- Were explanations obtained before the warehouse was opened?
- Were goods received during the count and goods of another organization kept out of the surplus?
- Was the possibility of regrading checked?
- Is the surplus shown in the statement at the value in the records?
- Was the journal entry made from the account that matches where the surplus was found (warehouse, finished goods or workshop)?
- Were the cause of the surplus and the person at fault identified, and the result submitted to the head?
Test yourself
5 questions on this topic: pick an option or reveal the answer.
Chairs made in a furniture workshop were received into the warehouse at actual production cost. What journal entry is made under NAS No. 21?
An inventory count was carried out in the warehouse of "Chirchiq mashinasozlik", and a surplus of domestic equipment requiring installation, not shown in the records, was found. What journal entry is made under NAS No. 21?
"Bekobod plyonka" LLC uses 1510 in its accounting policy. Polyethylene granules received from a supplier were first recorded as Dt 1510 Ct 6010. Now the granules have been received into the warehouse at actual cost. Which journal entry is made?
A stock-take was carried out in the warehouse of "Quva anor" LLC, and 40 boxes of pomegranate juice (the company's own product) not shown in the books were found in surplus. Under NAS No. 21, which journal entry is made?
An inventory count revealed a shortage of goods, but it is impossible to identify the guilty person. According to the table in para. 412, with which entry is the shortage taken to loss?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- NAS No. 19 "Organization and Conduct of Inventory Counts", paragraph 69 · surplus property is taken onto the books and credited to the organization's financial results, after which the causes of the surplus and the persons at fault are identified; losses within the norm are determined after surpluses from regrading are taken into account
- NAS No. 19, paragraphs 9, 10, 16, 19, 39, 41 and 68 · proposals for offsetting from regrading (drawn up by the working commission, their validity checked by the standing commission); valuables of other organizations and inventories received during the count on separate sheets; explanations before the warehouse is opened; surplus in the statement at the value in the records
- NAS No. 4 "Inventories", paragraph 92 · taking onto the books the value of surplus inventories found in a count is reflected as other operating income
- NAS No. 21 "Chart of Accounts", paragraph 154 (line 7), paragraph 141 (line 5), paragraph 405 (lines 10 and 14) · 2910–2990 / 9390; 2810 / 9390; surplus of materials in workshops and of work in progress 2010, 2310, 2510, 2710 / 9390; surplus products and goods 2810–2890, 2910–2990 / 9390
- Example and amounts · compiled by the author, hypothetical