A Store is a virtual money that can be encased. However, this money needs to be properly counted or accounted for. Stock accounting is thus a systematic way of assessing the money value of the items lying in stores as also the items under transaction through stores.
Transactions, in terms of receipts and issues are a regular feature in any stores and therefore Stock accounting process, in most of the cases, concentrates only on the stock in hand, lying in Stores.
The most popular methods of accounting are, FIFO i.e First In First Out and LIFO, Last In First Out.
FIFO and LIFO Methods as accounting techniques are used in managing inventory (Stock lying in Stores for future use) and financial matters involving the amount of money a company has tied up within inventory of produced goods, raw materials, parts, components, or feed stocks. These methods are used to manage assumptions of cost flows related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes.
FIFO standing for first-in, first-out, implies that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact oldest physical object has been tracked and sold.
LIFO stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first. Since the 1970s, some U.S. companies shifted towards the use of LIFO, which reduces their income taxes in times of inflation, but with International Financial Reporting Standards banning the use of LIFO, more companies have gone back to FIFO. LIFO is only used in Japan and the U.S.
The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve. This reserve is essentially the amount by which an entity’s taxable income has been deferred by using the LIFO method.
For maintaining the continuous accountability of items under storage, it is essential to periodically verify the stock of the items with respect to their storage record.
The process of physically verifying the stock of items with respect to the stock on record is known as stock verification. The correction of the record to take care of any observed discrepancy in stock is known as reconciliation of stock. The periodicity of stock verification depends on the value of the item and also nature of the item. High value & pilfer-able items are verified more frequently.
Consumption budget monitoring
Each User department is allocated the Budget for the consumption of various commodities of items in the beginning of the financial year. Issue of material to the user department is made after ensuring the availability of budget for that department for that commodity.
Once the issue of material is made the budget of the department is updated. Once the budget is exhausted the user departments need to take additional budget provision or clearance of competent authority to draw further material from Stores.
This consumption budget monitoring is done to ensure proper control on the expenditure and cost incurred by the user department.