material accounting

Material Accounting

Dr. Kshitija GandhiPh.D, M.Phil, M.com, MBA, NET

Meaning of Stores

Raw Material used in

Production

Consumable stores such

as oil, grease, etc.

Tools , patterns,

maintenance materials etc.

Stock of work in

ProgressStock of Finished

Goods

Store Includes

Objectives of Storage

To ensure uninterrupted supply of stores to the production and service departments

To prevent overstocking and Understocking

To ensure an effective an economic use of the available storage space and labour.

To minimise the cost of storage

Objectives of Storage

To identify and locate storage easily as to issue

material immediately.

To maintain upto date stores records.

To facilitate stock taking.

Organisation Structure of Stores Department

Issuing Assistant

Records Assistant

ReceivingAssistant

Stores Keeper

Stores Manager

Stock Taking

assistant

Material Requisition

assistant

Functions of Stores Department

To issue Purchase Requisition to Purchase Department when the stock reaches to the Re order Level

To receive the material from the Goods received Department or Goods Inspection Department

To maintain proper Record of balance, issue and receipt of Material.

Functions of Stores Department

To provide adequate and proper storage for every item.

To place and arrange materials received at proper place so that everything will be at its place.

To maintain proper Record of balance, issue and receipt of Material.

Functions of Stores Department

To keep the material safely as to avoid wastage, pilferage and deterioration.

To issue material against proper stores requisition.

To ensure that the stock should not exceed the maximum level nor the minimum level..

To take physical stock and compare with the actual balances as per the record as to find out discrepancies and take appropriate action in this behalf

To locate the slow moving and obsolete items and inform the management about them.

To check measuring equipments and their accuracy.

Functions of Stores Department

To minimise the storage handling and maintenance cost

To co coordinate and supervise the staff in the stores Department.

To check measuring equipments and their accuracy.

Functions of Stores Department

Material Requisition

Meaning It is a document which is used to authorize and record the issue of materials from the stores

Who Prepares it?

ForemanIn case of Costly material : Higher Authority is Responsible.

No. of copies Three1. Store Keeper2. Cost Accounting Department3. Initiating Department

Procedure Two copies of MRN are sent to store keeper.Store keeper makes entry in the Bin CardSends Requisition to Cost accounting Department to fill up the rate and amount column.Makes the entries in Stores Ledger

Material RequisitionMaterial Requisition

Bills of Material

Meaning Is a list of standard quantities of all materials required for a particular job or work order or a process.

Who Prepares it?

Engineering or Planning Department.

No. of copies Four copies 1. Production Department 2. Stores Department3. Cost Accounting Department4. Engineering or Planning Department

Bills of Material

Procedure1. Engineering or Planning Department sends three copies of

Bills of Materials to Production Department

2. Production Department sends two copies to Stores

Department

3. Stores Department makes entries in the Bin Cards and fills

up column 5 and 6 and then issues materials to the

Production Department and then sends copy of Bills of

Material after the signature of Cost Accounting Department.

4. Cost Accounting Department fills up rate and amount

column of BOM and makes entries in the stores Ledger

Material RequisitionBills of Material

Material RequisitionMaterial Return Note

• Material excess in requirement or defective are returned to

stores.

• Material returned with Material Return Note.

• MRN is similar to Material Requisition Note, Therefore two

separate colours are used for that.

Two copies are send to the

Department which

prepares it.

One copy is kept with the Department

for the reference.

Stores Dept. records in Bin Card & sends

ne copy to Cost Accounting Department

Cost Accounting Department

gives necessary

credit to the concerned

department for the material returned.

Three copies are prepared by Department which returns the material.

Material Return Note

Material Return Note

No Basis of Distinction

Periodic Inventory System

Perpetual Inventory System

1 Basis of Ascertaining Inventory

Inventory is ascertained on the basis of an actual physical count/measure/weight

Inventory is ascertained on the basis of Records

2 Calculation of Inventory

Inventory is calculated by applying methods of valuation like FIFO, LIFO

Inventory is calculated as Closing Inventory= Opening Inventory + Purchases – Cost of Goods Sold

3 Calculation of Cost of goods sold

Cost of Material issued = Opening Inventory + Purchases – Closing Inventory

Cost of Materials issued id\s directly calculated by applying the method of valuation of inventories.

Inventory System

No. Basis of Distinction

Periodic Inventory System

Perpetual Inventory System

4 Lost Goods Cost of Material issued may include Cost of Material Lost

Inventory may include Cost of Material Lost

5 Closing down of work for stock taking

It requires closing down of work for stock taking.

It does not require closing down of work for stocktaking.

6 Simplicity and Cost

It does not facilitate the continuous stock checking

It facilitates the continuous stock checking

7 Continuous Stock Checking

It is simple and inexpensive

It is elaborate and expensive.

Inventory System

No.

Basis of Distinction

Bin Card Stores Ledger

1 Materials on Order

It does not show Material On Order

It shows the materials on order

2 Where kept? It kept outside each bin It is kept at one place in cabinets or trays

3 Written by It is written by person handling materials.

It is written y person solely engaged in clerical work

4 Condition of record

It is not in clean condition due to proximity of material

It is kept clean and neat

5 Physical Identification

It facilitates on the spot comparison of physical stock because of proximity of material

It does not facilitates easy and physical identification of an item because of no proximity of material

Inventory System

No. Basis of Distinction

Bin Card Stores Ledger

6 Physical Verification

It facilitates on the spot comparison of physical stock with its book Balance

It does not facilitate on the spot comparison of physical stock with its book Balance

7 Chances of Errors

There would be less chances of errors because entries are made at a time as goods are received

There may be chances of errors because entries are made later on by the person who is handling material.

Inventory System