All purchases of inventoriable goods are to be recorded by using the Finance System account range 030000-049999.

The Selection of the Specific Account Codes is Determined by the Type of Inventory

  • 030000: Inventory-Sales External to University
    This account presents the value of inventories on hand that is expected to be sold to customers outside of the university.
  • 040000: Inventory-Internal Sales/Consumed
    This account is similar to account 030000, but consumption takes place within the university and is charged to the purchasing department as an expenditure.
  • 040001–0400xx: User-Defined Inventory Accounts
    Accounts within this range are similar to account 040000. Consumption of the goods takes place within the university and is charged to the purchasing department as supplies or other appropriate expense accounts. The Office of University Controller has a complete Chart of Accounts that are found in the Finance System.

The value of a department’s inventory normally fluctuates due to purchases and sales that occur during each accounting period. The m-Fin Financial Detail report presents the amount of sales and provides the amount for the cost of goods sold.

Inventories increase when purchases are made or when goods are returned by customers. Inventories decrease as a result of sales, consumption of goods, or when goods are returned to vendors.

Each department with an inventory is required to keep inventory records. These records must clearly and accurately show the actual inventory count and inventory valuation at any given date. Such records can be as sophisticated as an inventory software package or as simple as an Excel spreadsheet. CCO recommends that each department sets up a SpeedType that will be used for the tracking of inventory transactions.  After set-up, notify CCO’s debt and asset manager of its intended use.

Example Using a Department’s Inventory SpeedType

Department X has an inventory of maintenance supplies.

The department purchases 40 cans of floor wax at $6.00 per can and pays $4.00 in freight ($0.10 per can) on the purchase.

The total cost of the purchase is $244.00. The general ledger entries will be (via PO/SPO voucher): 

Debit Inventory - account 0400xx $244.00
Credit Cash ($244.00)

Four cans of wax were used internally by department X.

A journal entry is prepared to remove the four cans from inventory and record the appropriate expense in a departmental FOPPS. The cost of each can includes the added burden for freight: $244.00/40 cans = $6.10 per can. Thus, the total cost for the four cans is $24.40.

The new inventory balance is $219.60, which consists of 36 cans at $6.10 each.

Debit Expense - account 515109 $24.40
Credit Inventory - account 0400xx ($24.40)

Department X now sells 10 cans of floor wax to department Y at $7.00 per can.

A journal entry is created to record the sale and the reduction to inventory.

Record the sale (10 cans at $7.00 = $70.00).

Debit Dept Y Exp - account 515109 $70.00
Credit Dept X Rev - account 380100 ($70.00)

Record the inventory effect (i.e. charge cost of goods sold and reduce inventory by 10 cans at $6.10 = $61.00).

Thus, Department X has $9.00 in net revenue ($70.00 Revenue minus $61.00 Cost of Goods) and a new inventory balance of $158.60 or 26 cans of floor wax.

Debit Cost of Goods - account 450200 $61.00
Credit Inventory - account 0400xx ($61.00)

Prior to fiscal year-end closing on June 30, Department X completes its annual physical inventory count and discovers that two cans of the floor wax were defective.

A journal entry is processed to adjust the physical inventory for the defective cans.

The journal entry to adjust the inventory (two cans at $6.10 = $12.20) is:

Thus, the adjusted inventory balance for Department X is $146.40. Twenty-four cans of floor wax are reported on the department’s inventory asset report.

Debit Physical Inventory Adjustment - account 450300     $12.20
Credit Inventory - account 0400xx ($12.20)