Accounting for shortages, surplus and re-sorting

When conducting an inventory, shortages, surpluses, or re-sorting are almost always discovered. Read the article to find out what they are, how to document them, and how to reflect them in accounting.

What are the types of shortages?

There are two types of shortages:

1. Within the limits of natural decline;

2. Exceeding the natural loss rate.

What is natural loss? This is when a product decreases in weight as a result of biological or physicochemical properties, but retains its quality. Natural loss includes a decrease in the mass of goods due to moisture evaporation, weathering, spraying, crumbling, leakage, spillage during pumping and sale of liquid goods, etc. If the goods have been damaged, lost or stolen, such shortage cannot be attributed to natural loss.

To determine the maximum permissible (marginal) losses that occur during storage, transportation, movement and sale, there are established regulations, they are called natural loss rates (they are different for different types of goods and stocks).

They are used in situations where the weight or quantity declared in the documents differs from the actual weight or quantity, for example, during inventory or when accepting goods from a supplier.

There are rules for writing off shortages within the limits of natural loss:

• goods cannot be written off at the rate of natural loss if the fact of shortage is not detected;

• you must write off the actual amount of the shortage, even if more can be written off according to the natural loss rates;

• if there are no standards for writing off a shortage, it is treated as a shortage in excess of the standard;

• first, you need to sort out the surplus and re-sort, and only then write off the shortages.

The shortages are divided according to the moment of their detection:

1. the shortages were discovered when the goods were received from the supplier;

2. shortages were identified during the inventory.

Depending on when the shortage was detected, it is processed in different ways.

Documentation of shortages detected upon acceptance of goods

The CCU states that the establishment and observance of the terms of sale and purchase are governed by an agreement between the supplier and the buyer, or by acts of civil law if no agreement has been concluded.

If the contract has been concluded, it takes precedence in case of questions regarding the acceptance of the goods. However, when drafting the contract, the acceptance clause should be drafted on the basis of regulatory legal acts on standardization.

If there is no contract, then the issue of acceptance of goods is regulated by Instruction No. P-6. Although it was developed in the USSR, its provisions are still in effect, so don't let it bother you.

Also, if your cargo is transported by third-party organizations, additional documents are provided:

• rules for the delivery of goods - if the goods are transported by rail;

• rules for the transportation of goods by road - if transported by a third-party trucking company.

If you are accepting goods by quantity, you need to check the transport and accompanying documents of the manufacturer (sender). These can be an invoice, a bill of lading, a specification, a description, etc.

For the actual quantity of goods, you need to draw up an act of acceptance of materials of form No. M-7 or a receipt order No. M-4. If a shortage is detected, an act in any form is drawn up and signed by all participants in the process. This act must contain all the details specified in form No. M-7.

The shortage report is drawn up in two copies. One copy is submitted to the accounting department to record the actual quantity of goods and write off the shortage within the natural loss rate or in excess of the rate. The second copy is sent to the supply department. They will draw up a letter of claim to the supplier on the basis of the act.

If the goods were delivered by rail, a commercial act must also be drawn up.

If the shortage is the fault of the carrier, you should file a claim for damages. If the carrier refuses to compensate for the loss or does not respond to the letter within a month, you should file a lawsuit. Please note that you can claim damages only if the shortage exceeds the natural loss rate.

How to account for shortages detected during the acceptance of goods?

Shortages of inventory and goods within the natural loss rate are included in the original cost of the purchased goods. In other words, the goods received should be recorded at an inflated price, so that the debt to the supplier will be reflected correctly.

If an excessive shortage is detected, it is not included in the initial cost of the goods, but is written off as an expense of the period in which it occurred. In other words, you should record the actual quantity of goods received, taking into account the natural loss rates, and anything in excess of the rates should be recorded as a debt under a claim (to the supplier or carrier). Such debt can be settled by supplying the goods or by reimbursing the funds.

If the excessive shortage was the fault of the buyer, it must be written off as an expense of the current period.

Documentation of shortages identified during the inventory

Most often, shortages are detected during an inventory. The results of the inventory are recorded in an inventory list or inventory act. They show the actual availability of goods on the date of the inventory.

The inventory can be developed by the company independently or an approved form can be used. Such an inventory shall be drawn up in duplicate and signed by all members of the commission (participants in the revaluation).

Next, the inventory is transferred to the accounting department, and a reconciliation statement is drawn up in duplicate for the identified shortage. There are two forms of such a statement:

• Reconciliation statement of inventory results in the form approved by Order No. 572;

• Reconciliation statement of the results of inventory of inventory items in the form No. inv-19, approved by Resolution No. 241.

Or develop such a statement yourself.

The final step is to draw up a protocol in duplicate. You can draw it up yourself or use a form for public sector employees. This protocol is then submitted to the accounting department for write-off and reflection in the financial statements.

How to account for surplus goods?

If surpluses are found during the restatement, they naturally need to be recorded. If they are to be sold in the future, they should be recorded at their net realizable value (estimated selling price less costs to sell).

How to account for re-sorting?

If re-sorting is detected, surplus and shortages should be offset.

You can re-sort if:

• the goods have the same name;

• an equal number of goods to be re-sorted;

• surpluses and shortages occurred in the same period under review;

• surpluses and shortages occurred with the same financially responsible person.

If there is a re-sorting in one product group, you must first post the surplus, then write off the shortage, and only then set natural loss rates for the remaining shortage.

As a result of re-sorting, the value of the goods with shortages and surpluses often does not match. As a result, sum differences appear. Negative sum differences should be attributed to the guilty parties. If there are no guilty parties, then such a difference is attributed to a shortage in excess of the natural loss rate and written off as an expense. If the re-sorting results in a positive aggregate difference, it is recognized as income.