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Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

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16–46. Identify Inactive Inventory in the Product Master File

There are few things more frustrating than for someone to disposition obsolete inventory, only to find that more inventory is then ordered, requiring additional effort to disposition once again. This typically happens when the company’s automatic reordering system notices that the inventory balance for this item has dropped to zero, and sends a message to the purchasing department, asking for a new purchase to bring the inventory balance up to some predetermined minimum.

The obvious best practice is to reset the product’s activity flag in the product master file to “obsolete,” “inactive,” or some similar code. This not only tells the system to stop buying more inventory, but also makes it impossible for the purchasing staff to create a purchase order through the computer system. The main problem is getting the person responsible for rendering inventory obsolete to remember to reset the flag. This can be accomplished by noting the deactivation step in bold on the written inventory deactivation procedure. However, if the person doing this work ignores the procedure, it may be necessary to include a pop-up reminder in the inventory software code that appears whenever an inventory balance is set to zero. Another alternative is to modify the software to automatically alter the product master file whenever an obsolescence code is used as part of a transaction to write down inventory.

Cost: Installation time:

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