Purchase and Inventory

Procedures, Procedures, Documents and Documents and LCR ApplicationLCR Application

Section 1: Section 1: Purchase PaymentPurchase Payment

By : Sami Rahim Udgatty

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DOCUMENTS• OB: Blanket Order• PI : Proforma Invoice /• Inv : Supplier Invoice• BL : Bill of Lading• PL : Packing List• COO: Certificate of Origin

CHECKING / APPROVAL• OB: Signed by Authorised signatory as per delgation on value.• PI : Sealed & Signed with Bank details• Inv : Sealed & Signed reflecting OB number & itemd details• BL : Clarity on destination, Inv. #, date of shipment.• PL : Item details as per payment made for same.• COO: Type of product & concern country’s certification

ENTRIES• PP : Pre-Payment• PS : AP Vouc with PO match• PV : Expenses• PD : Deductions for discount, charges, expenses• PN : Payment entry / matching

Voucher

Copy of OB

(Blanket Order)

Supplier PI / Inv.

Accounts

Mgr.

PURCHASE

Dept.

Purchase Payment

ACCOUNTS

Dept.

Bank Seat

Voucher Supplier

Outstanding statement

Verifying Approval Payment

Payment Document (TT / Chq)

BL, Pkg List, COO

PP, PS, PV, PD entry PN entry

Intl. Audit Dept.

Auth. Signature By : Sami Rahim Udgatty


1. OP : Order number used to match payments and LCR application.(OO-overseas order, OF-Centralised Local purchase)

2. Inco Term : FOB – Supplier bears all cost from his Ex-works, transport and loading on ship

3. Inco Term : C&F Sharjah – Supplier bears expenses of Ocean / Air freight till unloading at destination port

4. Shipment Ref # : Useful for LCR supplier invoices especially insurance.By : Sami Rahim Udgatty

Supporting documents required at the time of payment

Documents will vary as per payment type i.e. Advance or final payment


Material inward & LCR Application Process Flow

Material Receipt

Shpg. Documents

ITEMS

3 Warehouse

1

Pur. Dept

Material Inward (GRN)

4

Accounts

2

QC Dept

Q/C Report

Quality Checking

System check abt inward

LCR application

Custom Duty 5% Freight Route Transportation Contrn size Insurance 10% + 20% Miscellaneous Actual

5

Showrooms

System check abt LCR Aplc

Contr

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Commonly, the total cost of a landed shipment including purchase price, freight, insurance, and other costs up to the port of destination. In some instances, it may also include the customs duties and other taxes levied on the shipment.


http://www.investorwords.com/5006/total_cost.html

http://www.businessdictionary.com/definition/shipment.html

http://www.businessdictionary.com/definition/purchase.html

http://www.businessdictionary.com/definition/price.html

http://www.businessdictionary.com/definition/freight.html

Material receipt entry effect

Material Inward

Inventory

Split between Adv / Agst

outstandings

Supplier

Liability RNV – Trade Supplier PS creation agst RNV for Sundry Creditor RNV – LCR Supplier PS-PP matching to update Ledger

Current Asset Inventory is updated in form of Quantity and basic value. After LCR application, Cost of inventory goes up affecting the trade stock.


FOC Treatment

Free Of Cost items : Items supplied by supplier Free of Cost to cover up the warranty or defective items if any.

FOC

Inventory Split between

Income / Inventory

FOC Receipt

Income statement Other income under FOC Receipt

Current Assets FOC plus the main quantity with value forms Trade stock


Supplier Balance

Period Opening Bal.: Previous year / month end balance. Payment : Unmatched payment; advances, against material, expenses etc. Trade Creditors : Unmatched (PS) invoices of trade supplier LCR Creditors : Unmatched (PS) invoices of suppliers who provides services towards

various procurement services (Freight, Insurance, Transport, Customs, etc.) RNV Tr. Crs. : Receipts Not Vouched, these are those transactions pertaining to Trade

creditors of which material is received but liability (PS) is not considered in absence of non receipt of original invoice.

RNV LCR Crs.: LCR Applied for items but invoices of service provider is not yet received, hence these are appearing as RNV.

(a) Charges: Supplier agrees to provide additional service like packing, delivery, etc. on behalf of customer against such payment. These kind of transaction needs to be highlighted separately. (PV)

(b) Deductions: Supplier agrees to give deductions on payments, shipment delay, defective items, exhibition charges, visit charges etc. (PD)

FOC : Free Of Cost goods which is agreed by supplier to deliver against bulk orders. This is purely for meeting to cover-up few defective items, warranty coverage etc.

Blank Address : All the transactions especially the JE’s passed for solving integrity issue, rectifying closing balance etc.; does not update the G/L account as per the supplier number.

AFTER consolidating all the above G/Ls we finally arrive at the closing balance of supplier.

Period Opening Balance

Payments Trade Creditors

LCR Creditors

RNV Trade Crs.

RNV LCR Crs.

Charges / Deductions

FOC Blank Adrs

Closing Balance

O P T L RT RL CD F B C

G/L’s to be considered for arriving at CLOSING Balance of suppliers:


Valuation and Valuation and Report Report

preparationpreparation

Section 2: Section 2: InventoryInventory


11-Jul-09 Inventory 11

What's our inventory and its valuation ??


Date Qty in hand1-Jan 40001-Feb 6000 units @ 16 each 30001-Mar 7000 units @22 each 30001-Apr 8000 units @ 17 each 50001-May 6000 units @25 each 50001-May 5000

Purchases SalesFIFO (First In First Out)

Transaction Rate Qty ValueOpening Stock 12 4000 48,000.00 Purchases 16 6000 96,000.00

17 8000 136,000.00 Cost of Goods available for SALE 280,000.00

Cost of Goods SOLD7000 12 4000 48,000.00

16 3000 48,000.00 6000 16 3000 48,000.00

17 3000 51,000.00 COGS 195,000.00

Inventory in HAND 85,000.00

LIFO (Last In First Out)Transaction Rate Qty Value

Opening Stock 12 4000 48,000.00 Purchases 16 6000 96,000.00

17 8000 136,000.00 Cost of Goods available for SALE 280,000.00

Cost of Goods SOLD7000 17 7000 119,000.00 6000 17 1000 17,000.00

16 5000 80,000.00 -

COGS 216,000.00 Inventory in HAND 64,000.00

WAC (Weighted Average Cost)Transaction Rate Qty Value

Opening Stock 12 4000 48,000.00 Purchases 16 6000 96,000.00

17 8000 136,000.00 Cost of Goods available for SALE 280,000.00 Average Unit Cost 15.56 Cost of Goods SOLD

7000 15.56 7000 108,888.89 6000 15.56 6000 93,333.33

- -

COGS 202,222.22 Inventory in HAND 77,777.78


Cost of goods available for

Sale

Available Inventory Split between

COGS & Closing Stk

Cost of goods Sold

Income Statement Sales (Less) COGS Gross Profit

Balance Sheet Closing Stock

FIFO LIFO WAC

Sales 304,000.00 304,000.00 304,000.00 Cost of Goods Sold 195,000.00 216,000.00 202,222.22 Gross Profit 109,000.00 88,000.00 101,777.78

Ending Inventory 85,000.00 64,000.00 77,777.78

Material receipt entry effect


11-Jul-09 Inventory 14

Transactions affecting stock value

Purchases LCR

Application Sales Return Re-costing WAC

Alignment

Sales Re-costing Purchase return WAC Alignment

Increase in stock value

Decrease in stock value


12-Jul-09 Purchase and Inventory 15

Management’s report requirements

Purchases : Suppliers’ outstanding Ageing report Suppliers’ Advance ageing report Suppliers’ Turnover report

Inventory : Inventory valuation Inventory ageing report Product mix ABC Analysis


12-Jul-09 Purchase and Inventory 16

Thank-you

Suggestion / ?s
