HEXCO · Polytechnic · NC Accountancy

Accounts Administration: Capturing Data

Learning Outcome 2 of 3

Free HEXCO NC Accountancy notes on Capturing Data, learning outcome 2 of 3 in Accounts Administration. Procuring departmental requirements, capturing data and vouching. Semester 1, module 310/22/M03.

Here we learn how stores accounting values issues of stock using FIFO, LIFO and AVCO, how stock records create an audit trail, how stocktaking controls stock, and how data is captured manually and electronically on time.

Stock is often one of the largest assets of a business, so every receipt and issue must be captured accurately, completely and on time, giving records that can be traced and checked.

2.1 Stock Accounting Data

Stores accounting records the quantity and value of goods received into and issued from the stores.

When goods are bought at different prices, a valuation method decides the cost of each issue and of the stock left.

Importance of Stores Accounting

Stores accounting shows the quantity and value of stock at any time, prevents theft and waste by making the storekeeper accountable, provides the cost of materials issued to jobs and departments, signals when to reorder, and supplies the closing inventory figure for the financial statements. Without it, a business cannot know what it has, what it has used, or what its profit really is.

The Valuation Methods

Under FIFO (first in, first out), the oldest goods are assumed to be issued first, so issues are priced at the earliest costs and closing stock at the latest costs. Under LIFO (last in, first out), the newest goods are assumed to be issued first, so closing stock is valued at the oldest costs; LIFO is not allowed under IAS 2 for financial statements, but it may still be met in examinations and internal records. Under AVCO (weighted average cost), a new average cost per unit is worked out after each receipt, and issues are priced at that average.

The same data is used below for all three methods: 1 Jan, received 100 units at $10; 5 Jan, received 100 units at $12; 10 Jan, issued 150 units.

Here you are finding the cost of goods issued from the stores and the value of the stock left, when the same item was bought at different prices. Under FIFO, take the oldest batch first; under LIFO, take the newest batch first; under AVCO, first find the average cost of all units held, then use it for every unit issued. Always check your work: cost of issues plus closing stock must equal the total cost of all the stock you had. Below, we show you how it is done, step by step.

FIFO: value the issue on 10 Jan and the closing stock.

Issue the oldest units first: 100 × $10 = $1,000
Then 50 of the next batch: 50 × $12 = $600
Cost of issue = 1,000 + 600 = $1,600
Closing stock = 50 × $12 = $600

Answer: Issue $1,600; closing stock $600

LIFO: value the issue on 10 Jan and the closing stock.

Issue the newest units first: 100 × $12 = $1,200
Then 50 of the older batch: 50 × $10 = $500
Cost of issue = 1,200 + 500 = $1,700
Closing stock = 50 × $10 = $500

Answer: Issue $1,700; closing stock $500

AVCO: value the issue on 10 Jan and the closing stock.

Total cost before the issue = 1,000 + 1,200 = $2,200 for 200 units
Average cost = 2,200 ÷ 200 = $11 per unit
Cost of issue = 150 × $11 = $1,650
Closing stock = 50 × $11 = $550

Answer: Issue $1,650; closing stock $550

Comparing the Methods

When prices are rising, as in the example, FIFO gives the highest closing stock and the highest profit, LIFO gives the lowest, and AVCO falls in between. FIFO matches the physical flow of most goods and gives a closing stock close to current prices, while AVCO smooths out price changes. Whatever the method, it must be applied consistently from one period to the next.

The Imprest System for Stock

Under the imprest system, a fixed level of stock, the imprest, is set for a department or sub-store. At the end of each period, the stock used is counted and topped up back to the imprest level, so the amount issued always equals the amount used. For example, a ward in a hospital may have an imprest of 50 boxes of gloves; if 18 are used in a week, 18 are issued on Friday to bring it back to 50. This keeps control simple, because any shortfall shows at once.

2.2 Stock Records and the Audit Trail

An audit trail is a chain of records that lets anyone follow a transaction from its source document to the final accounts and back.

For stock, the trail is built from the documents and records of every receipt and issue.

Importance of Stock Records

Stock records show the balance of each item without a physical count, create accountability for the storekeeper, support reordering, help detect losses by comparing records with actual counts, and provide evidence for auditors. Good records also show slow-moving and obsolete items, so that action can be taken before they lose all value.

Information in Stock Records

A stock record, such as a bin card or stores ledger card, shows the item description and code, unit of measure, location, reorder, minimum and maximum levels, and for every movement the date, document reference, quantity received, quantity issued and balance. The stores ledger card, kept by the accounts section, also shows unit prices and values, while the bin card, kept by the storekeeper, shows quantities only.

Documents Used in Recording Stock

Goods coming in are recorded from the delivery note and the goods received note (GRN). Goods going out are recorded from the stores requisition, signed by the department and the storekeeper. Goods returned to stores use a stores returned note, goods moved between stores use a transfer note, and goods sent back to suppliers use a goods returned note and the supplier's credit note.

Tracing Stock Transactions

To trace a transaction, start from the source document, such as the GRN, find the matching entry on the bin card and stores ledger card, then follow it to the purchases records and the ledger. Tracing can also go backwards, from a figure in the ledger to its document. In the card above, the issue on 10 Jan is traced to stores requisition SR 112, which shows who asked for the paper and who approved it.

Detecting and Recording Stock Deficiencies

A stock deficiency is a shortage found when the physical count is less than the balance in the records. It may be caused by theft, damage, evaporation or breakage, errors in recording or issues made without documents. The difference is recorded on a stock discrepancy report, investigated, and, once approved, written off by adjusting the bin card and ledger card. For example, if records show 50 reams but only 46 are counted, a deficiency of 4 reams worth 4 × $12 = $48 is reported and investigated.

Changes in Quantities in Stock

The quantity in stock changes through receipts, issues, returns to stores, returns to suppliers, transfers between stores, and write-offs of damaged or obsolete items. Each change must be supported by a document and recorded on the same day, so that the balance on the records always matches the goods on the shelf.

2.3 Stocktaking, Stock Checking and Stock Audit

Records can be wrong, so the actual stock must be counted and compared with them from time to time.

Stocktaking, stock checking and stock audits are the main control mechanisms for this.

Meaning of the Terms

Stocktaking is the physical counting of all items in stock at a particular date, usually the year end, to confirm the quantity and value of closing inventory. Stock checking is the regular counting of selected items during the year, to confirm that the records are correct. A stock audit is an independent examination of the stock records, the counting procedures and the valuation, carried out by internal or external auditors to confirm that the figures can be relied on.

Types of Stocktaking

Periodic stocktaking counts all items at the end of a period, often closing the stores for a day or two. Continuous (perpetual) stocktaking counts a few items every day or week, so that every item is counted several times a year without closing the stores. Spot checks are surprise counts of selected items, often high-value or attractive items, to deter theft.

Procedures for Stocktaking

Good stocktaking follows these steps:

Plan the count

Set the date and time, divide the stores into counting areas, and appoint counting teams of two, preferably not including the storekeeper of that area.

Prepare the stores

Stop receipts and issues during the count, tidy the shelves, and separate damaged goods and goods belonging to others.

Count and record

Count each item and write the quantity on pre-numbered stock sheets, then mark the shelf to show it has been counted.

Check the count

A supervisor recounts a sample of items, and the stock sheets are signed by the counters and the supervisor.

Compare and investigate

Compare the counts with the records, list all differences and investigate them before any adjustment is approved.

Documents Used in Stocktaking

The main documents are stock sheets, which list each item, its code, location and counted quantity; count tags attached to counted items; the bin cards and stores ledger cards used for comparison; the stock discrepancy report, which lists differences; and the stocktaking certificate, signed by the responsible officer to confirm the count.

Handling Stock Discrepancies

A discrepancy is any difference between the counted quantity and the records. Each one is recounted to rule out counting errors, the documents are checked for unrecorded receipts or issues, and the cause is investigated. Differences that are explained are corrected; unexplained losses are reported to management, approved for write-off and recorded, and serious or repeated losses may lead to disciplinary action or tighter controls. Surpluses must also be investigated, because they often mean an issue was not recorded.

2.4 Manual and Electronic Capturing of Data

Data can be captured by writing it in books and cards or by entering it into a computer system.

Each method has its own requirements, benefits and risks, so organisations choose the one that suits their size and needs.

Electronic Capturing

Electronic capturing is the entering of transaction data into a computer system, such as an accounting package, a spreadsheet or a stock control system, where it is stored and processed electronically.

Electronic capturing	Explanation
Criteria What is needed	Computers, suitable software, reliable power and internet, trained staff, passwords and user rights, and regular backups.
Benefits Why it is used	It is fast, calculates automatically, reduces arithmetic errors, gives instant reports, and records who entered each item and when.
Risks What can go wrong	Data can be lost through power cuts, viruses or hardware failure, hacked or changed without permission, or entered wrongly once and repeated everywhere.

Manual Capturing

Manual capturing is the recording of transactions by hand in books, cards and registers, such as bin cards, day books and ledgers.

Manual capturing	Explanation
Criteria What is needed	Pre-printed books and cards, neat and careful staff, clear procedures, and safe storage for the records.
Benefits Why it is used	It is cheap to set up, needs no power or computer skills, and suits small businesses with few transactions.
Risks What can go wrong	It is slow, arithmetic and copying errors are common, records can be lost, burnt or altered, and reports take long to prepare.

2.5 Capturing Data on Time

Data is only useful if it is up to date, so captured late, it gives managers a wrong picture.

Every organisation therefore sets time frames within which transactions must be recorded.

The Right Time

The right time for capturing data is as soon as possible after the transaction happens, and always within the time frame set by the department, such as the same day for receipts and issues, or before month-end for invoices.

Capturing at the right time keeps stock balances correct, so reorders are made on time and the month-end accounts are ready when needed.

Expediting Capturing

To expedite capturing means to speed it up. This is done by capturing documents daily rather than letting them pile up, using batch totals to enter similar documents together, using electronic systems and barcode scanners, training staff, and setting deadlines with supervisors checking that they are met.

Lead Time and the Factors Affecting It

Lead time is the time between starting a process and completing it, for example between placing an order and receiving the goods, or between a transaction and its capture. It is affected by the distance and reliability of suppliers, transport, the volume of work, the number of approvals needed, staff availability and skills, and system breakdowns such as power cuts. A longer lead time needs a higher reorder level, which is why it is closely linked to stock control.

Timing of Capturing

Data may be captured in real time, as each transaction happens, as in a supermarket till; in daily batches, as when a clerk captures all the day's GRNs at 4 pm; or periodically, such as weekly or monthly. Stock transactions should be captured in real time or daily, because a delay of even a few days can lead to wrong reorder decisions and hides losses.