Management Accounts Query

[DSLiverpool]

We do them monthly but I have an issue that cant be black and white (and remember I am a salesman I only see sales)

We do the accounts and apply a stock adjustment to them of start value - end value + orders placed in the month = stock adjustment + or -

However where I get frustrated is the stock value can have too many variables depending on timing and it cocks up my true profitability.

Question is do all companies have the stock value in the management accounts and if so can it be done a better way.

I say this as we have a huge hole we are looking for the cause and it will be a mistimed order or delivery that's messed up the whole month !!!

[Eric Mc]

The opening and closing stock figures (and Work in Progress if appropriate) should always be taken into account at the beginning and end of each accounting period (it doesn't matter whether the accounting period covers one week, one month, one quarter or one year).
Obviously, the ability to include 100% stock or work in progress figures as at the end of every calendar month may not be practicable - and that is where realistic estimates and assumptions have to be used.

If there is a "hole" in the figures somewhere, it could be that someone or some people are making incorrect assumptions and/or estimates when trying to evaluate the end of month stock levels.

[DSLiverpool]

Thanks Eric, I am going to suggest we do the stock reconciliation quarterly and the profit monthly - 3 people are looking for a MX5 size hole today!

[Countdown]

I assume you don't have a computerised Procure-to-Pay system or stock control system?

[DSLiverpool]

Countdown said:

I assume you don't have a computerised Procure-to-Pay system or stock control system?

We are computerising the stock right now but its a small company with a full time book keeper - I think its one invoice but they haven't found it yet. And I don't think we could "lose" it

[Countdown]

Ok. To answer your original question;

DSLiverpool said:

Question is do all companies have the stock value in the management accounts and if so can it be done a better way.

Yes. All companies (at least the ones I've worked for)have included stock value in the management accounts. How accurately the stock/WIP has been valued depends on the materiality of the stock/WIP on the P&L. For example

Small building company - stock is valued using the "finger in the air" methodology.

Large HA - all stock is computerised and valued at cost. It would also include commitments (Goods ordered not received) and GRNI. The HA had 60-odd vans and each van would hold a mini-version of stock held and stock used which fed into the sooper dooper master stock system

can it be done in a better way? It depends on how much volatility it is causing to your monthly P&L and whether that merits the PITA of implementing a stock control system.

[DSLiverpool]

Countdown said:

Small building company - stock is valued using the "finger in the air" methodology.

.

We are so small that putting a £20k invoice in the wrong month or not spotting a supplier sending in early with a later date invoice that they forget to "later date" kills my months profit (on paper). If my profit is killed I need to look at sales and channels however its not a sales issue so I could be meddling for no good reason. With online sales its easy to yell "turn up the adwords budget" and if you don't have to its an expensive money wasting exercise.

So we all decided that stock adjustments will be done every quarter and we have found the problem (just) - one large invoice was wrongly entered and it wiped my profit out for the month - Christ!

[Eric Mc]

How do they arrive at the closing stock value at the end of each month?

Do they do a similar exercise for Work in Progress?

Is any sort of genuine stock reconciliation carried out during the year end and especially at the financial year end date?

[DSLiverpool]

How do they arrive at the closing stock value at the end of each month?

1. Stock take of 3 warehouses plus returns within all stages (at DST, at supplier, awaiting credit etc)

Do they do a similar exercise for Work in Progress?

1. We declare a sterile morning with no wip in or out.

Is any sort of genuine stock reconciliation carried out during the year end and especially at the financial year end date?

1. Its actually done too often, its done at least quarterly and is never very far out

The issue is a lack of attention entering invoices on this occasion but our new CMS doesn't require supplier invoices to be entered, it used the order placed with the supplier and you confirm it has arrived in rather than enter more data.

[Eric Mc]

Maybe the new system is MORE accurate and you are learning the true situation.

Is the first set of management accounts with the new methods being used?

[anonymous-user]

I recall a switch to SAP and a similar problem

The numbers were a bit bigger - we identified the problem was that a raw material code had been set up incorrectly as being tonnes rather than kg, but the factory conversion rate was - correctly - set to kgs. According to the computer, we had taken delivery of just over 58,000 tonnes of said raw material (rice as it happens) in the month and consumed only 5,720 kg. The leftover 52,280 tonnes was - according to the computer - left in stock.

Quite seriously someone from on the SAP implementation group expected one of my team to trundle down to the warehouse to check because it was 'unlikely that the computer was wrong.' I asked him how he expected a 10,000 pallet space warehouse to hold 52,000 full pallet tay bags of rice, as well as the 7,000 pallets of other stuff in there and suggested that, if there was any checking needed, he was probably the best man for the job.

oh how we laughed