Audit of Inventory - Accounting for Invoiced Items (money collected) butnot delivered

[Kishankumar Solanki]

Hello everybody,

I have come across an interesting situation relating to Accounting treatment for Inventory for which Invoice raised & Money collected from the customer, but the item is not delivered to the customer. The item to be delivered to the customer as per his demand any time.

I am in Qatar, a Gulf Country, where some customers - Sheikhs who are very rich and pay in advance and ask for reserving a particular item to be delivered to his one of the wife / relative as per his desire. As a trader, our company has to keep the stock of particular item in stock. Since the money can be collected against invoice, the invoice is prepared by the sales dept and revenue is recognized. To prepare the invoice, DO has to be generated and hence in the Inventory system the item is entered as dispatched, but physically, it is kept separately in the store. Such a stock is about 5 % of the total inventory carried by the company.

Can you can me whether the treatment of the company is correct and what is the proper accounting treatment is such situation. Any suggestion for system is also welcome.

Thanks & with best regards


Kishan Solanki
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Kishankumar J. Solanki
Asst. Manager - Group Internal Audit
Mannai Corporation QSC
PO Box 76
DOHA, QATAR
Ph. +974 - 4412555 Ext. 266
Fax. +974 -4429819
Email: [EMAIL PROTECTED]