Inventory Management

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According to Messier (2008), the following topics related to the inventory management process are discussed:

1. Types of documents and records

2. The major functions

3. The key segregation of duties

Documents and records included in the inventory management process are:

Production Schedule. It is normally prepared periodically based on the expected demand for the entity’s products.
Receiving Reports. It records the receipts of goods from vendors. This document was classified as part of the purchasing process. It is reconsidered in the inventory management process because a copy of this document accompanies the goods to the inventory department and is used to update the client’s perpetual inventory records.
Material Requisition. It is normally used by manufacturing companies to track materials during the production process. It is prepared by department personnel as needed for production process.
Inventory Master File. It contains all the important information related to the entity’s inventory, including the perpetual inventory records.
Production Data Information. In a manufacturing company, productions information about transfer of goods and related cost accumulation at each stage of production should be reported.
Cost accumulation and Variance Report. Most inventory control systems in a manufacturing setting produce reports similar to a cost accumulation and variance report.
Inventory Status Report. It shows the type and amount of products on hand. This report can also be used to determine the status of goods in process.
Shipping Order. This document was discussed as part of the revenue process, it is considered here because a copy of this document is used to remove goods from the client’s perpetual inventory records.

Functions in the inventory management process:

Inventory Management. This department is responsible for maintaining inventory at appropriate levels. It issues purchase requisitions to the purchasing department and thus represents the point at which the inventory management process integrates with the purchasing process. In a manufacturing company, a production management department would be responsible for managing inventory through planning and scheduling manufacturing activities.
Raw Material Stores. In a manufacturing company, this function is responsible for the receipt, custody, and issuance of raw materials. When goods are received from vendors, they are transferred from the receiving department to the raw material stores department. Once goods arrive in the raw materials storage area, they must be safeguard against pilferage or unauthorized use. Finally, when goods are requested for production through the issuance of a materials requisition, this function issues the goods to the appropriate manufacturing department.
Finished Goods Stores. This function is responsible for the storage of control over finished goods. When goods are completed by the manufacturing function, they are transferred to finished goods stores. Again, there must be adequate safeguard against pilferage or unauthorized use. When goods are ordered by a customer, a shipping order is produced by the revenue process and forwarded to the finished goods stores department. The goods are transferred to the shipping department for shipment to the customer.
Cost Accounting. This function is responsible for ensuring that costs are properly attached to inventory as goods are processed through the manufacturing function. Cost accounting reviews the cost accumulation and variance reports after such data are processed into the accounting records.
General Ledger. It is to ensure that all inventory and costs of production are properly accumulated, classified, and summarized in the general ledger accounts.

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