SUBSECTION 2.2.4.4
INVENTORIES

2.2.4.4.1

Control of Inventories

Effective Date:

Sept. 1, 1998

Agencies are to comply with the OFM prescribed inventory policies and procedures. Refer to Part 3 of this manual.

2.2.4.4.2

Consumable Inventories

Effective Date:

Sept. 1, 1998

For consumable inventories estimated to exceed $25,000 in value, agencies are to select, and consistently apply, one of the following two accounting alternatives.

2.2.4.4.2.a

2.2.4.4.2.a(1)

Purchases of consumable inventories during the year are recorded by debiting GL Code 6510 "Cash Expenditures/Expenses" using Object E and crediting cash. (Refer to Section 2.2.4.7.15.a for an illustrative entry.)

2.2.4.4.2.a(2)

No entry is required to record the use of consumable inventories during the year.

2.2.4.4.2.a(3)

An annual adjustment is recorded to reflect the actual inventory balance as determined by a physical inventory count (Refer to Section 2.2.4.7.15.c for an illustrative entry.)

2.2.4.4.2.a(4)

In governmental and expendable trust fund type accounts, an additional entry is required at year-end to adjust the reserved portion of fund balance to indicate that the amount of consumable inventories is not available for appropriation.

2.2.4.4.2.a(4)(a)

If consumable inventories increased during the year, the additional adjusting entry is recorded by debiting GL Code 9590 "Unreserved/Undesignated Fund Balance" and crediting GL Code 9540 "Reserved for Consumable Inventories" for the amount of the increase. (Refer to Section 2.2.4.7.15.c for an illustrative entry.)

This entry is reversed if consumable inventories decreased during the year.

2.2.4.4.2.a(4)(b)

The balance in GL Code 9540 "Reserved for Consumable Inventories" at year end is to equal the balance in GL Code 1410 "Consumable Inventories."

2.2.4.4.2.b

2.2.4.4.2.b(1)

Purchases of consumable inventories during the year are recorded as assets by debiting GL Code 1410 "Consumable Inventories" and crediting the appropriate cash or payable GL code. (Refer to Section 2.4.4.7.16.a for an illustrative entry.)

2.2.4.4.2.b(2)

To record the use of consumable inventories during the year, GL Code 6510 "Cash Expenditures/Expenses" is debited and GL Code 1410 "Consumable Inventories" is credited. (Refer to Section 2.2.4.7.16.b for an illustrative entry.)

2.2.4.4.2.b(3)

An adjustment may be required to reflect the actual ending inventory balance as determined by performing a physical inventory count.

2.2.4.4.2.b(4)

In governmental and expendable trust fund type accounts, an additional adjusting entry is required at year end to adjust the reserved portion of fund balance to indicate that the amount of consumable inventories is not available for appropriation.

2.2.4.4.2.b(4)(a)

If GL Code 1410 "Consumable Inventories" increased , the adjusting entry is recorded by debiting GL Code 9590 "Unreserved/Undesignated Fund Balance" and crediting GL Code 9540 "Reserved for Consumable Inventories" for the amount of the increase.

This entry is reversed if GL Code 1410 "Consumable Inventories" decreased.

2.2.4.4.2.b(4)(b)

The balance in GL Code 9540 "Reserved for Consumable Inventories" at year end equals the balance in GL Code 1410 "Consumable Inventories."

2.2.4.4.3

Merchandise Inventories in Proprietary Fund Type Accounts

Effective Date:

Sept. 1, 1998

Agencies are to select, and consistently apply, one of the following alternatives to account for merchandise inventories in proprietary fund type accounts.

2.2.4.4.3.a

2.2.4.4.3.a(1)

Purchases of merchandise during the year are recorded as expenses by debiting GL Code 6516 "Cost of Goods Sold" using Object F and crediting the appropriate cash or payable GL code. (Refer to Section 2.2.4.7.17.a for an illustrative entry.)

2.2.4.4.3.a(2)

Sales of merchandise are recorded by debiting the appropriate receivable or cash GL code and crediting GL Code 3205 "Accrued Revenues" or GL Code 3210 "Cash Revenues" as appropriate with either Revenue Source Code 0450 or 0455. (Refer to Section 2.2.4.7.17.b for an illustrative entry.)

2.2.4.4.3.a(3)

An annual adjustment is required to reflect the actual ending inventory balance as determined by performing a physical inventory count. If merchandise inventories increased during the year, this adjustment is accomplished by debiting GL Code 1420 "Merchandise Inventories" and crediting GL Code 6516 "Cost of Goods Sold" using the same object codes that were used in (1) above to purchase the merchandise. If merchandise inventories decreased during the year, this entry would be reversed. (Refer to Section 2.2.4.7.17.c for an illustrative entry.)

2.2.4.4.3.b

2.2.4.4.3.b(1)

Purchases of merchandise during the year are recorded as assets by debiting GL Code 1420 "Merchandise Inventories" and crediting the appropriate cash or payable GL code. (Refer to Section 2.2.4.7.18.a for an illustrative entry.)

2.2.4.4.3.b(2)

Sales of merchandise are recorded by debiting the appropriate receivable or cash GL code and crediting GL Code 3205 "Accrued Revenues" or GL Code 3210 "Cash Revenues" as appropriate with either Revenue Source Code 0450 or 0455. An additional entry is required to reflect the change in inventory. This entry debits GL Code 6516 "Cost of Goods Sold" using Object F and credits GL Code 1420 "Merchandise Inventories" for the cost of the merchandise sold. (Refer to Section 2.2.4.7.18.b for illustrative entries.)

2.2.4.4.3.b(3)

An adjustment is also usually required to reflect the actual inventory balance as determined by performing a physical inventory count. If the merchandise inventories count discloses an increase over the Merchandise Inventory amount (in GL Code 1420), an adjustment is necessary and is accomplished by debiting GL Code 1420 "Merchandise Inventories" and crediting GL Code 6516 "Cost of Goods Sold" using the same object code used in (2) above upon sale of the merchandise. If the merchandise inventories count discloses an amount less than the balance in GL Code 1420, the preceding entry would be reversed. (Refer to Section 2.2.4.7.17.c for an illustrative entry.)

2.2.4.4.4

Donations of Consumable Inventories

Effective Date:

Sept. 1, 1998

The following revenue and expenditure/expense examples illustrate one way to record the receipt and use of consumable inventories. The end result of the entries is that the balance in GL Code 1415 "Donated Inventories," which represents the value of donated inventories on hand is exactly offset by GL Code 5192 "Deferred Revenues-Short-Term." Also, the amount of donated inventory revenue recognized during the year, GL Code 3225 "Revenue Adjustment/Elimination (GAAP)," is exactly offset by GL Code 6525 "Expenditure/Expense Adjustment/Elimination (GAAP)," the amount of donated inventory used or distributed during the year.

2.2.4.4.4.a

Revenue--The fair market value of donated consumable inventories is recorded by debiting GL Code 1415 "Donated Inventories" and crediting GL Code 3225 "Revenue Adjustments/Eliminations (GAAP)" with an appropriate revenue source code. If the commodities were donated by the federal government, the applicable federal Revenue Source Code Series 03XX is used. If shipping costs were paid by the state, they are to be included in the above entry by increasing the debit to GL Code 1410 "Consumable Inventories," offset by a credit to the appropriate cash or payable GL code.

(Refer to Section 2.2.4.7.19.a for an illustrative entry.)

2.2.4.4.4.b

Expenditures/Expenses--To record the use or distribution of donated consumable inventories during the year, GL Code 6525 "Expenditure Adjustments/Eliminations (GAAP)" with an appropriate subobject is debited and GL Code 1415 "Donated Inventories" is credited for the previously recorded fair market value of the donated consumable inventories used.

The amount of shipping costs, if any, applicable to the used or distributed donated consumable inventories is to be removed (credited) from GL Code 1410 "Consumable Inventories" and GL Code 6510 "Cash Expenditures/Expenses" is to be debited.

(Refer to Section 2.2.4.7.19.b for an illustrative entry.)

2.2.4.4.4.c

Year End Adjustment--At year end an entry is required to adjust the amount of donated consumable inventory revenue credited to GL Code 3225 to agree to the amount used or distributed as recorded as debits to GL Code 6525. The amount of revenue recognized is to exactly offset the amount reported as expenditure/expense. The offset to the adjusting entry to GL Code 3225 is to GL Code 5192 "Deferred Revenues - Short-Term."

Shipping costs (if applicable) of donated consumable inventories on hand at fiscal year end is to be included in the ending balances of GL Code 1410 "Consumable Inventories."

In governmental and expendable trust fund type accounts, an additional entry is required to adjust the reserved portion of fund balance to indicate that the shipping costs expended on donated consumable inventories on hand are no longer available for appropriation. This entry is recorded by debiting GL Code 9590 "Unreserved/Undesignated Fund Balance" and crediting GL Code 9450 "Reserve for Consumable Inventories" for the amount of the increase in shipping costs in GL Code 1410. This entry would be reversed for a decrease in shipping costs in GL Code 1410. (Refer to Section 2.2.4.7.19.c for an illustrative entry.)

2.2.4.4.4.d

Transfers Between Agencies--If donated inventory is transferred between agencies, the sending agency records the transfer by reversing the entry made when the inventory was received. Because the sending agency is not consuming the inventory, it does not record an expenditure for inventory transferred to other agencies. The receiving agency is to record the receipt and use of the donated inventory in accordance with one of the methods described herein.

2.2.4.4.5

Food Stamp Inventories

Effective Date:

Sept. 1, 1998

The following revenue and expenditure examples illustrate one way to record the receipt and distribution of food stamps. The end result of the entries is that the balance in GL Code 1470 "Food Stamp Inventory" which represents the face value of food stamp inventory is exactly offset by GL Code 5192 "Deferred Revenues." Also, the amount of food stamp revenue recognized during the year, GL Code 3225 "Revenue Adjustment/Elimination (GAAP)," is exactly offset by GL Code 6525 "Expenditure/Expense Adjustment/Elimination (GAAP)," the amount of food stamps distributed during the year.

2.2.4.4.5.a

Revenue--The face value of food stamps received is recorded by debiting GL Code 1470 "Food Stamp Inventory" and crediting GL Code 3225 "Revenue Adjustments/Eliminations (GAAP)" with Revenue Source Code 0310 "Department of Agriculture." (Refer to Section 2.2.4.7.20.a for an illustrative entry.)

2.2.4.4.5.b

Expenditures/Expenses--To record the use of food stamps distributed during the year, GL Code 6525 "Expenditure Adjustments/Eliminations (GAAP)" with an appropriate object is debited and GL Code 1470 "Food Stamp Inventory" is credited for the face value of food stamps distributed. (Refer to Section 2.2.4.7.20.b for an illustrative entry.)

2.2.4.4.5.c

Year End Adjustment--At year end, an entry is required to adjust the amount of food stamps recognized as revenue (credited to GL Code 3225) to agree to the amount distributed and recorded as expenditures (debited to GL Code 6525). The amount of revenue recognized is to exactly offset the amount reported as expenditure. The offset to the adjusting entry to GL Code 3225 is to GL Code 5192 "Deferred Revenues - Short-Term." (Refer to Section 2.2.4.7.20.c for an illustrative entry.) After this adjusting entry, the amount reported as food stamp inventory in GL Code 1470 should be exactly offset by GL Code 5192.

2.2.4.4.5.d

Transfers Between Agencies--If food stamp inventory is transferred between agencies, the sending agency is to reverse the entry made when the inventory was received. The receiving agency is to record the food stamp inventory.