Differences between the accounting data and the actual availability of stocks in the company are established by their inventory. An excess of one type of inventory items caused by the lack of another is called theregrading. What should an accountant know about it?
Important criteria
As it is known, inventory differences arise due to various reasons, and it is possible to offset shortages and surpluses of inventory items resulting from regrading only when meeting the following criteria:
- regrading occurred for inventory items at the identity number and the same name;
- one financially responsible person has balances and shortages formed in one period.
Thus, it is possible to offset shortages and balances only as a result of accidental regrading. Therefore, even if all the criteria are met, but there is a suspicion that the financially responsible person abused his/her position, it is not recommended to offset inventory items. One of characteristics of this situation is excess of the cost of shortages and surpluses over the recurrence of such cases in the previous periods.
We recommend in this situation to offset the shortages and surpluses of inventory items only after careful examination.
Accounting of regrading
The reflection of offsetting of shortages and surpluses of inventory items in accounting resulting from regrading would depend on whether cost criterion of re-discounted inventory items were adhered since the amount should be the same.
Thus, there are three possible results of enrolment of shortages cost by the amounts of inventory items balances:
- absence of cost differences;
- balances value is greater than the amounts of shortages;
- amounts of shortages prevail over cost of balances.
Absence of cost differences
The first situation is classical: the cost differences do not arise as a result of offsetting of inventory items. It is the simplest situation for an accountant, because such a transaction should be reflected only in analytics. In other words, changes should be reflected on the cards of analytical accounting within one synthetic account of inventory items (for example, 201). The accounting of regrading is finished at the stage, and this transaction does not affect the financial statements and tax reporting.
But it is not always possible to completely “fulfil” the shortages amount by the inventory items surplus. Therefore, let’s consider two other possible situations.
The balances cost is greater than the amount of shortages
When the balances cost is greater than the amount of shortages, the company is “in the black” due to such an offsetting of inventory items. Accordingly, the amount of excess of balances value over shortages of inventory items will enter the company incomes. It should be reflected within other operating incomes – in credit of subaccount 719.
The amount of balances exceeds the cost of shortages
The excess of the cost of shortages over the amount of balances of inventory items is attributed to other operating expenses – debit of subaccount 947 “Shortages and losses from damage to property”. At the same time, the same amount should be reflected under the debit of subaccount 072 “Uncompensated shortages and losses from damage to property”. However, it is quite difficult to prove the guilt of the financially responsible person in this situation, because the offset surplus and shortages of inventory items should be conducted only due to accidental confusion.
