Part 5: Reviewing Accounting inventory, after looking at large value postings. The next step is to review manual entries effecting Parts Physical Inventory, and then look at aftermarket parts postings. There are cases (at least at this point in the process of a bad reconciliation) where you could find shop tools and other non-parts inventoried items posted within parts inventory.
A step to take when reviewing a bad physical inventory/reconciliation, is to review accounting when all else is exhausted (see prior posts). Start with the last 30 days, and pull all accounts which effect physical inventory in Accounting. Then sort by largest to smallest, and review if the postings are correct.
When an inventory reconciliation goes bad, it’s a long drawn out process that requires many weeks of review. Normally, after your review, large postings within Accounting that effect Physical Inventory from the last 90 days, you’ll see trends – good (reaffirming proper postings) or bad; where it affects parts physical inventory.
When things go bad in a physical inventory count, the automatic presumption is that the physical count was bad. More often then not, a “recount” doesn’t find or fix the problem. If the problem is big enough, to rule out the physical inventory count isn’t a problem, it is a good idea to recount. In many cases you’ll find the problem within the numbers on the reconciliation.
Remember, what is counted physically, and what is in the parts dept physically, is the foundation for the entire Inventory Reconciliation process. Not liking the number found in physical count doesn’t mean that it’s the root of the problem. Commonly when there are inventory reconciliation problems, you’ll find the problem/solution in accounting numbers, as much as you could find it in parts dept numbers.
If you’ve tried making your reconciliation match, and you just can’t get the numbers to line up, keep in mind, there are 2 places you have to investigate to find the problem. It could exist in Parts or Accounting.
Yes, much as the problem could exist in Parts, it could also exist in Accounting. Don’t assume that the problem can only exist in Parts. Parts is 1 of 2 area’s to look.
Part 1 : You completed a physical parts inventory count, and your numbers are still off. If this is the case, after you followed the advise and steps from our prior posts, you need to hone in on a few areas;
– Are there values missing from either side of the Parts Dept or Accounting Dept in the Reconciliation?
– Are there values entered on either side, which are listed as a positive value, when it should be a negative value (or visa versa)?
– Is there supporting documentation for every value entered on the Reconciliation for both sides?
– Have the Controller and Parts Manager meet and agree on every number listed to ensure accuracy.
– Confirm dates which values are listed are values from Month end, and not from the new month.
– Confirm timing of each value listed to ensure Accounting posted exactly to the timeline you expected.
Part 2: After a physical inventory count, it’s imperative that you have listed out all the numbers possible, that effect both Parts Physical and Accounting Inventories.
Here is a list of the most common (but not limited to) “Accounting Dept Values” from the Accounting side;
Accounting Dept Inventory Value From The Month End Financial Statement
Value of OEM Parts Received, Not Posted In Accounting
Value of OEM Cores Received, Not Posted in Accounting
Value of OEM Parts Posted in Accounting, Not in Physical Inventory Yet (Prepaid)
Value of Aftermarket Parts Received, Not Posted in Accounting
Value of Aftermarket Cores Received, Not Posted in Accounting
Value of Aftermarket Parts Posted in Accounting, Not in Physical Inventory Yet
Value of Negative On-Hand Parts
Value of Company Credit Card Purchases Unposted In Accounting
Value of Company Credit Card Purchases Posted, Not in Physical Inventory Yet
Value of Any Other Prepaid Parts, Outstanding In-House Credits At Vendors
Part 1: After a physical inventory count, it’s imperative that you have listed out all the numbers possible that effect both Parts Physical and Accounting Inventories. Here is a list of the most common (but not limited to) “Parts Dept Values” from Parts side;
- Value of Physical Inventory (From Parts Managers Report)
- Value of Outstanding Parts Claims (OE/Aftermarket)
- Value of Dirty Cores
- On Hand Value of Clean Cores
- Aftermarket Parts Pending Credit
- Aftermarket Core Pending Credit
- OEM Parts Returned Pending Credit
- OEM Cores Returned,Pending Credit
- Work In Process Parts Invoices
- Work In Process Repair Orders
- Work In Process Body Shop
- Value of Parts In Stock, Not In System
- Value Of OEM Dirty Cores In Transit
- Value of Aftermarket Dirty Cores In Transit
It happens sometimes, where Physical Parts Inventory counts vs. Accounting (known as Inventory Reconciliation) doesn’t line up.
The first step is for the parts manager to go back, get all his documents together, review line by line, and re-total his numbers. If the problem exists still where Parts Physical and Accounting still don’t line up, the best way is to look for items missing. This is more common than you think.
In the next two posts, we’ll give you a list of the “most” common places to pull numbers from to do Inventory Reconciliation.
The best way to record and submit an inventory reconciliation, after a physical parts inventory count, is to have each number you need to gather from a source (a report, a vendor, etc.) itemized on its own line, within the reconciliation. That way, if there is a problem, you can match the documentation to the value you entered on the Reconciliation, and give supporting documentation. It also ensures you don’t forget anything – and visibility adds credibility.
When doing a physical parts inventory count, ensure to record and keep every single document, which you extracted a number, including screen prints where you can’t get a printed copy.
The best Parts Managers have their ducks in a row. They have documentation to support every number, and every line on an inventory reconciliation – whether it be monthly or annually. It’s recommended you also keep copies from accounting from which numbers were provided.
As a DP – it’s peace of mind.