DOES STOCK ADJUSTMENT HAVE AN EFFECT OF YOUR PROCUREMENT?

The stock adjustment figure (positive or negative is an element that may be needed where the client has significant stock-in-trade and where the cost of sales shown in the statement of accounts does not adequately reflect the purchases for the measurement period.


Procurement Targets for total measurement procurement spend is calculated by 5 financial indicators:

· Cost of sales

· Stock Adjustment

· Additions

· Financial Cost

· Expenses


How to calculate the Stock Adjustment:

Closing stock is the amount of inventory that a business still has on hand at the end of a reporting period. This includes raw materials, work-in-process, and finished goods inventory. The amount of closing stock can be ascertained with a physical count of the inventory

Open inventory, also known as opening inventory, is the amount of inventory that a business has on hand at the beginning of an accounting period, such as a new fiscal year or quarter. Inventory consists of merchandise/stock ready for sale.

Inventory is an asset and its ending balance is reported in the current asset section of a company's balance sheet. An Inventory is not an income statement account however the change in an inventory is a component in the calculation of the Cost of Goods Sold, which is often presented on a company's income statement.

Example:


Audited Financial Statements:

1. Statement of Financial Position breakdown (February 2020)

2. Current Assets

3. Inventories

4. See current year (February 2020) and previous year totals (February 2019)

5. Calculation always remember (C before O) Closing Stock minus Opening Stock

6. Indicated below = R3025183 - R5596747

7. -R2571564

8. Note figure can be positive as well

Management Accounts:

1. Balance Sheet with comparative data for current measured period OR Inventory Ledger Account as at current period for the closing stock figure

2. Previous years audited financial statements to see the opening stock

Stock adjustment can have a positive or negative impact on your procurement score as it influences the measured entities Total Measurement Procurement Spend. If the amount is negative, your TMPS will decrease, if positive the TMPS will Increase.


Article by Francois Le Sueur

Executive Consultant

OVER 30 YEARS EXPERIENCE

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