Washington State University
BUSINESS POLICIES AND PROCEDURES MANUAL
Merchandise and Consumable Inventories
Area deans, department chairs, and/or directors are responsible
for inventory control of merchandise and/or consumable inventories. Inventory
directly affects the financial position and results of the operation.
Departments must maintain proper inventory control.
Proper inventory control involves keeping track of the number of inventory
items and clearly accounting for the monetary value of inventory transactions
Departments must use either a perpetual or periodic inventory
tracking method to maintain all merchandise and consumable inventories.
Inventory Value and Count
Departments must complete a physical inventory count at least
In calculating merchandise and/or consumable balances on hand, departments
may exclude items which have high turnover rate and extremely low cost,
e.g., nuts, bolts, screws, washers, unless exclusion would materially misstate
Departments must submit a total of the monetary value of inventory on hand
as of the end of the fiscal year to the Controller's Office. The Controller's
Office requires this information to complete the financial statements. The
last day of the fiscal year is June 30.
Departments must value and count all merchandise items annually.
Departments must value and count all consumables when the balance
on hand is estimated to exceed $50,000 in value.
Exception to Annual Inventory
Departments which have consumable inventories with an estimated
value of less than $50,000 may request an exception from an annual physical
inventory count. Contact the Controller's Office; telephone 509-335-2013.
Merchandise inventory consists of merchandise which is for sale
to other agencies or the public.
Consumable inventory consists of goods and supplies which are
on hand in or under the control of a central, departmental storeroom for
use in operations.
Inventory Tracking Methods
Perpetual and periodic inventories are methods of keeping track
of the number of items held in the merchandise or consumable inventories.
Under the perpetual inventory method, items are added to or
subtracted from the inventory totals immediately upon receipt or removal.
This provides a running count of the inventory on hand.
Under the periodic inventory method, items are received and
issued without being added to or subtracted from the inventory totals. A
physical count must be conducted to provide the number of items in the inventory.
A physical inventory is a count of the merchandise and/or goods
and supplies on hand.
PHYSICAL INVENTORY PROCEDURES
Prior to the actual counting of inventory items, departments
must do the following:
Notify Controller's Office
At least two weeks prior to the start of the counting
process, submit a Physical Inventory Notification memorandum to the Controller's
Office. Copy or print the master on the PDF version of 20.53.7
to make copies of the memorandum as needed.
The Controller's Office notifies the offices of the State Auditor and the
Internal Auditor as to the time and location of the physical inventory.
Auditors may attend the inventory to observe the count.
Clean, straighten, and organize all areas. Place similar items
Prepare a map or blueprint of the area to be inventoried.
Give complete instructions to all personnel participating in
Inventory Sheets or Tags
Prenumber all inventory sheets or tags.
After prenumbering, departments may prepare the inventory count sheets or
tags. The sheets or tags must be completed and arranged by inventory locations,
i.e., bin number, floor area, etc.
List the descriptions of the items in those areas, bins, etc., on the inventory
sheets or tags. NOTE: Do not enter quantities until the actual count.
Remove or segregate all obsolete or defective items and other
items not to be counted.
Clearly label "Noninventory item" on all removed or segregated
Departments are to ensure a proper cutoff between the items
of inventory to be counted and the items which are not to be counted.
Ideally, the department should be closed during the physical inventory.
However, if all activities cannot be halted, the department must make the
following arrangements to ensure that items issued during the count are
counted and that items received during the count are not counted.
The supervisor must maintain a receipt or requisition book or
log to keep track of items received and issued during the inventory count.
Items Received One Day Prior to Inventory Count
Record the item identification number, description, area location, and amount
of all items received or issued while the physical inventory count is conducted.
Clearly label "Before Inventory" on all documents
for items received one day prior to the inventory count and placed into
inventory. Include these items in the inventory count.
Items Received During Inventory Count
Clearly label "After Inventory" on all documents for
items received during the inventory count. Physically segregate these items
from the inventory being counted until the physical count has been completed.
Items Issued During Inventory Count
Create receipts or requisitions and tags or labels to issue
items during the physical count. These documents must include:
Clearly write "Removed During Count" on each tag or label. Place
a tag or label in the bin or at the area location at the time an item is
physically removed. Include these items in the physical inventory count.
- Item identification number,
- Amount issued, and
- Area location of the item(s).
Log all receipt and/or requisition information into the supervisor's receipt/requisition
book. Retain the receipts or requisitions for review.
Count teams are comprised of a counter and a recorder. Each
team should include one person not directly involved with the inventory
on a daily basis.
The department assigns each team to count specific inventory locations.
The team counts only the inventory in the specified areas.
The count teams must:
- Place the names of the counter and recorder on the inventory sheets
- Count all items in the assigned areas, even if the items do not belong
in those areas. EXCEPTION: Those items labeled "Noninventory"
are not counted.
If the inventory count sheets have been prepared in advance
and an item is listed at a location but is not present, enter "zero"
for the quantity amount.
Add any items not included on the prepared inventory count sheets.
- Clearly mark the items or bins using a standard symbol (chalk or sticker)
as each item or bin is counted.
This helps the count team, supervisor, and auditors when rechecking
or test counting an area to identify any missed or duplicated items.
- Return the inventory count sheets or tags to the supervisor when the
count is complete in each assigned location.
The supervisor must:
- Observe the counting process.
- Ensure instructions are followed and questions answered.
- Control the prenumbered assigned physical inventory count sheets or
Maintain a control list of the prenumbered sheets or tags. Check
off the numbers of the turned-in sheets on the control list to be certain
all sheets are accounted for.
Item Valuation and Extensions
- Mark the floor plan as each area is counted.
- Inspect each location upon completion of the team's count.
- Sign the inventory sheets for each inspected location.
- Conduct a final tour of the premises upon completion of the count
to ensure that all items have either been counted or labeled as "Noninventory"
or "After Inventory" and not counted.
When the count is complete, checked, and the sheets signed by
the supervisor, departments must adjust the perpetual or periodic
The department is to assign a value to each item based upon the acquisition
or production cost of the item. The department uses this value and the physical
count to adjust inventory records. The department is to:
- Verify all unit values prior to performing extensions and totaling;
- List the value of each individual item;
- Extend the values for each item category, i.e., unit value multiplied
by number of items counted in that category;
- Calculate and list the totals for each inventory sheet;
- Make a final verification that all inventory count sheets are completed,
checked, signed, valued, extended, and totalled; and
- Retain all count sheets for review.
Contact the Controller's Office with questions about the valuation
of inventoried items; telephone 509-335-2013.
Physical Inventory Value Memorandum
Submit a recap of the physical inventory in memorandum form
to Property Inventory, Controller's Office. Include the following information:
FISCAL YEAR-END REPORTING
Copy or print the master on the PDF version of 20.53.8
to make copies of the Physical Inventory Value memorandum as needed.
- Inventory amount,
- Method used to account for inventory,
- Department contact name,
- Contact telephone number,
- Dean/director/chair name and signature.
Each department which has a merchandise and/or consumable inventory
must submit a total of the monetary value of inventory on hand as
of the end of the fiscal year to the Controller's Office.
Physical Inventory Before June 30
When the physical inventory is taken on a date other than June 30 and a
periodic inventory tracking method is used, the department must adjust the
totals for any activity between the date of the count and June 30.
Prepare a detailed copy of this reconciliation of the inventory from the
count date to June 30. Retain the reconciliation for audit evaluation of
compliance with cutoff procedures. See 90.01.
If the physical inventory is taken before June 30, add all inventory
purchases through June 30 and subtract all issuances from stock from the
physical counts to determine the inventory amount at June 30.
Physical Inventory After June 30
If the physical inventory is taken after June 30, subtract all
purchases after June 30 and add all issuances from stock back into the physical
inventory count to determine the inventory amount at June 30.
To ensure fair representation of the information given by WSU
in state and University financial statements, the State Auditor's Office
may do the following as part of their annual audit:
- Observe and investigate inventory controls,
- Observe and investigate physical inventory procedures, and
- Make physical tests of the inventory quantities.
Contact Property Inventory for assistance with maintaining or
counting merchandise and/or consumable inventories; telephone 509-335-2013.
See PDF version of BPPM, 20.53.7:
Physical Inventory Notification and
20.53.8: Physical Inventory Value
Copy or print as needed