Situation 1 The company instructions state that no shipping should occur during the physical inventory.

When observe theres a large shipment being loaded onto a truck during observation of physical inventory. The shipping clerk tells that one of the companys best customers called with a rush order and sent a truck over to pick up the material. Physical inventory taking is made at least once a year by persons other than the storekeepers and those who maintain perpetual inventory records. If possible, the production process should be stopped temporarily during the counting process of physical inventory, or the counting process of inventory only could performed while theres no receipt activity nor shipment activity. This means that there can be no movement of inventory into or out of the warehouse area during the counting process, nor can there be a movement of any related paperwork. If this basic rule is not followed, you will have great difficulty in determining the true value of the period-end inventory, because the quantities were in flux during the count. This section contains sample procedures that are applicable in most situations for ensuring a proper period-end cutoff of all inventory-related transfers. So, theres an option, postpone the shipment or postpone the physical inventory observation and the counting process, in order to obtained results of calculations are accurate. Situation 2 You notice some crates in the receiving area; after talking to the receiving department clerk, you obtain the following facts; The crates represent a transfer from one of the companys branches and have been tagged. The interplant transfer form is dated the first day after the inventory but is stamped before inventory.

The receiving clerk calls the branch and determines that its inventory was counted two days ago and that the crates were included in the branchs inventory.

Question: Is the cutoff proper? How would you follow up? Answer: All receivers processed by receiving inspections must be stamped Before Inventory.

Situation 3 The companys procedures state that receiving was cut off at 5 p.m. the previous day. During the physical inventory observation, you visit the receiving dock and note the following: 1. A truck is in the process of unloading a large receipt of inventory. 2. There are several boxes in the corner of the receiving area marked CUSTOMER MATERIAL. You determine that the material was sent to the company by one of its customers for processing. This is a typical transaction with this customer. 3. On the railroad siding next to the plant is a boxcar waiting to be unloaded. The boxcar contains a large shipment of inventory. You examine a receiving report which indicates it was received two days before inventory. For each example, determine the company should count the item. Answer: No 1. The company should count this item. No 2. The company shouldnt count this item. No 3. The company should count this item.