Re: Audit of Inventory - Accounting for Invoiced Items (money collected) but not delivered

[Kashif Marvi]

Dear Kishan,   I think that as far as the system is concerned it is correct upto recognition of the revenue, because it seems that your company recognizes revenue on the basis of raising an invoice and not on issuance of stock, which is one of the recognized accounting treatment.   However, I feel that raising a DO and its corresponding entry in the Inventory system is not correct to be done. Firstly because the inventory has not physically been despatched and is still in the custody of the company to be delivered later, and secondly because it will give a wrong inventory figure at the time of stock take.   Your company also keeps the stock seperately which in my opinion is also not correct considering the situation that the client asks for his goods after the expiry of the item, in which situation he will want a fresh stock to be delivered to him, whereas the company cannot say to the client that as he had paid in advance and his goods were seperated therefore he can only have that expired good which has long been saved for him in a seperate warehouse.   If your company does imply the above procedure then a situation will arise when lets say a customer has already paid for the goods and when he comes for the delivery of the goods he is given a fresh piece of item which in fact is worth more due to revision of the price, improvement, exchange difference etc.   In this situation, I think, from the view point of the inventory, the management of the company should take one of the two decisions. Either they should deliver a fresh piece of stock to the customer without charging a higher price or should charge a differential price at the time of delivery of the goods. As far as the matching of the inventory with the revenue is concerned, the management can always prepare a reconciliation of the inventory with a cushion of 5% for such undelivered stock.   As far as the recognition of the revenue is concerned, the procedure in vougue is correct if the policy is to recognize revenue on the basis of raising the invoice.  Kashif Ali Marvi Regional Internal Auditor Scancom Limited (Spacefon) Auto parts building, Graphic road, Accra, Ghana Mobile    : +233-24-301123 Email      :  [EMAIL PROTECTED] Website   : www.spacefon.com                                                   ----- Original Message ----- From: Kishankumar Solanki To: [EMAIL PROTECTED] ; [EMAIL PROTECTED] Sent: Tuesday, October 08, 2002 8:29 AM Subject: Audit of Inventory - Accounting for Invoiced Items (money collected) but not delivered 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 ---------------------------- 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]