Accounting Best Practices, Fifth Edition

18–11. Inventory Policies for Best Practices (Chapter 16)

• A materials review board shall conduct an ongoing review of the inventory to ascertain which items should be disposed of, and to direct this disposition in the most profitable manner. This policy keeps a company from accumulating an excessive amount of inventory, and also helps the controller by ensuring that obsolete inventory is located and valued on a regular basis.

  Impacted best practices:

  • Use bills of material to find inventory made obsolete by product withdrawals

• The company will reject all received items for which no prior authorization was issued. This policy sounds simple, but has a major impact on the receiving department, which no longer has to spend time tracking down the reasons for unauthorized deliveries, as well as the accounting department, which would otherwise have to search for and gain payment approval from whoever placed the delivery orders.

  Impacted best practices:

  • Reject unplanned receipts

• All inventory transactions shall be recorded in the warehouse management system database within ___ minutes of their occurrence. By keeping the time requirement of this policy extremely short, it essentially forces the warehouse manager to convert all materials management data collection systems to on-line, real-time systems.

  Impacted best practices:

  • Record inventory transactions with bar codes

  • Record inventory transactions with radio frequency communications

  • Track inventory with radio frequency identification

  • Eliminate all ...