Virginia State University
Policies Manual
Title: Supplies and Materials Inventory Policy
Policy: 5801
Purpose:
The purpose of this policy and procedure is to provide guidance in the administration of supplies and materials
inventories maintained across the Virginia State University campus. Each state agency is vested with the control, care,
and security of all inventories within the organization regardless of the dollar value and regardless of whether the
inventory is recorded in the agency’s financial statements. The types of inventory control systems vary depending on
the size, complexity, number and variety of items to be controlled. There are two types of inventory methods, the
perpetual and the periodic. The objectives of the Inventory Control Systems at Virginia State University are:
•
To ensure that sufficient quantities are on hand to meet agency needs;
•
That funds are not needlessly tied up in excessive inventory stockpiles;
•
That inventories are safeguarded from loss due to deterioration, obsolescence and pilferage;
•
That supplies and materials inventories are accurately reported in the financial statements in accordance with
GAAP, and
•
That based on the cost benefit of maintaining inventory records, that departments and units do not spend
unnecessary time and effort inventorying low dollar value items.
Authority, Responsibility, and Duties:
According to CAPP Manual Topic Number 30515, the Comptroller’s Directive requires all state agencies and
institutions having supplies and materials exceeding $1,000,000 must be reported using either the “Schedule of
Inventory on Hand at June 30 Attachment” or in their financial statements. The CAPP Manual also notes that any
agency or institution that does not meet the threshold must determine whether maintaining inventory records are cost
beneficial. The cost benefit is determined by the worth of the inventory, cost of tracking the items, and risks
surrounding inappropriate use of an item being tracked. Using these guidelines, any department or unit having supplies
and materials exceeding $1,000,000 or whose items have risks of inappropriate use, should be tracked using an
inventory control system. The manager of the unit should make the assessment and report information to Financial
Reporting for documentation and reporting purposes.
Definitions:
FIFO is an acronym for First In, First Out. This is a reporting convention used for determining inventory value which
means that items purchased first are used first. When determining the inventory value, the latest purchased items are
what is in the inventory and should be priced on this basis.
GAAP stands for Generally Accepted Accounting Principles. GAAP is created by various authoritative bodies
including the Committee on Accounting Standards, the Accounting Principles Board, the Financial Accounting
Standards Board, the American Institute of Certified Accountants and the Emerging Issues Task Force. There is also a
special standard setting body for government called the Governmental Accounting Standards Board. These bodies
establish the conventions, rules and procedures to define accounting practices at a particular time with respect to
financial presentation.
Revision Date: 12/11/06
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Virginia State University
Policies Manual
Title: Supplies and Materials Inventory Policy
Policy: 5801
Physical inventory is the stock or raw materials on hand as of a particular date which is recorded in the financial
statements.
Periodic Inventory Method is an accounting convention whereby the physical inventory on hand is counted at a
particular date and recorded for financial statements.
Perpetual Inventory Method is an accounting convention whereby inventory records are maintained continuously and
all additions and issuances out of the inventory are recorded. A physical count of the inventory is taken periodically and
the inventory records are compared to the physical counts.
Lower of Cost or Market is an inventory pricing convention which states that when pricing inventory for financial
statements, the inventory should be priced using cost data unless the values of inventory has decreased, in which case
the inventory would be priced at market value.
Policy Statements
All departments having supplies and materials in excess of $1,000,000 or with risks associated with inappropriate use
should use a departmental inventory control system in accordance with the following standards:
•
All supplies and materials received should be counted and inspected upon receipt, with discrepancies
promptly reported;
•
Issuances from inventory must be supported by signed requisitions, where applicable;
•
For those areas whose inventory exceeds $1,000,000, a periodic physical inventory count must be taken
annually at fiscal year-end (note-this does not apply to office supplies);
•
Storage areas should be properly secured to prevent unauthorized access.
Virginia State University uses both the periodic and perpetual inventory methods to document and record supplies and
materials inventories. In accordance with State policy, due to the cost benefit and materiality of carrying and reporting
office supply inventories, these items will not be included in the University’s inventory process. They will be expensed
as incurred. Even though supplies inventories will not be taken and reported to Financial Reporting at fiscal year-end,
departments must secure any supplies on hand and limit access to authorized staff. Due to the nature of inventories in
Student Health and the Police Department, inventory records must be maintained by the department but will not be
reported for financial statement purposes. For those areas that maintain inventories exceeding $1,000,000, the
inventories will be priced using the First In, First Out (FIFO) method. The University will record inventory in its
financial statements at the lower of cost or market.
For any area that maintains and uses the perpetual inventory method, all receipts and postings must be recorded in an
inventory ledger or system, periodic counts must be made of the stock on hand and reconciliations must be prepared of
book balances with physical counts.
The perpetual inventory records/system must contain the following:
(a) description of item
(b) storage location
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Virginia State University
Policies Manual
Title: Supplies and Materials Inventory Policy
Policy: 5801
(c) minimum and maximum quantities
(d) reorder quantity
(e) date and quantity of additions
(f) date, number and quantity of reductions-requisitions
(g) inventory deletions/adjustments and explanation
(h) balance on hand
Departmental units that maintain operating inventories for fulfilling their mission must determine a minimum and
maximum stock level to avoid outages of key supplies and materials.
Academic Departments and Administrative Units
Periodic Inventory:
Using the Inventory Count Sheet, record all items on hand as of June 30 each fiscal year. Record the item
description and the quantity on hand. Determine the value of the item by reviewing the latest cost of the item
recorded in the inventory count from purchase orders or other documentation. Because the University records
inventory at the “lower cost or market”, it may be necessary to review several purchases in determining the cost
of the inventory. For instance, if the year-end count for a particular item is 100 and the last purchase was for 50 of
an item, it will be necessary to review additional previous purchase(s) to determine the correct cost. Likewise, if
it has been a long period of time since an item was purchased and there has been a decrease in the value of the
inventory item, this should be recognized in the computed value of the inventory. It is expected that in most
cases this market adjustment will not be necessary. All inventory items that are obsolete or damaged must be
excluded from the count. Once the count forms have been completed, the preparer should sign the form and have
it approved by the responsible person for the account and email it to the VSU Financial Reporting Office.
Forward a signed copy to the same office. Copies of the form(s) and other documentation used to determine the
value of the inventory must be maintained for audit purposes.
Perpetual Inventory:
Record all additions (purchases) to inventory on the perpetual inventory card or in the automated inventory
record/system in accordance with the above policy. Record all requisitions (reductions) in the inventory record in
accordance with policy. At a minimum, at June 30 each fiscal year, take a physical count of the inventory on
hand. Review and reconcile the physical count to the book balance maintained in the inventory system. Record
the inventory on the attached Inventory Count Sheet(s). Price the inventory using the FIFO methodology by
reviewing recent requisitions/ purchases as described above. Make additional adjustments for market conditions
or obsolescence as described above. All adjustments to the inventory book value must be explained, including
write-downs between the physical count and the inventory on hand, reductions due to damage or obsolescence or
other reasons. Sign the form and have it approved by the responsible person for the account and forward an
electronic copy to the Financial Reporting Office. Forward the original signed copy to the Financial Reporting
Office. Keep a copy of the inventory forms forwarded to Reporting, including documentation used for pricing the
inventory, for audit purposes.
Note: Please check to ensure that pricing has been calculated correctly (i.e., the unit price times the
quantity). Also, ensure that the footing of the Value on Hand Column is added correctly.
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Virginia State University
Policies Manual
Title: Supplies and Materials Inventory Policy
Policy: 5801
State inventory policy requires that agencies determine minimum and maximum stock levels, where appropriate,
to avoid outages of key supplies and materials. To determine the minimum and maximum stock levels, analyze
usage of key inventory items and the necessary time to restock. Based on this analysis, calculate the minimum
and maximum quantities necessary to avoid outages. Determine the reorder quantity also based on usage and the
replenishment time line.
The Financial Reporting Office will forward the Inventory Count Forms and other instructions each year to the
respective Departments and Units that are required to report inventories. Included in the instructions will be due
dates. To comply with financial reporting deadlines established by the State Comptroller for State agencies,
departments must comply with the due dates established in the year-end instructions noted above.
References:
• National Council on Governmental Accounting Statement 1, Paragraph 73, Part (2)
• CAPP Manual: Volume No. 1 – Policies and Procedures
o Function No. 3000 – Fixed Assets Accounting
o Section No. 30500 – Asset Control and Management
o Topic No. 30515 – Supplies and Materials Inventory
Approved by: Eddie N. Moore, Jr., President
Date: December 19, 2006
Revision Date: 12/11/06
Page No: 4