Hubbell Policies

RESERVE FOR PHYSICAL INVENTORY POLICY

English

Owner : Vice President, Controller

Last Review: 2016.09.02

FIN – 42

Department: Finance

POLICY

All locations that are required to perform an annual physical inventory observation per the Physical Inventory Policy must ensure that proper loss reserves are recorded on the appropriate business unit’s Balance Sheet at month end.

SCOPE

This policy applies to all Hubbell business units who are not cycle count certified and therefore require physical inventory counts.

PURPOSE

The purpose of this policy is to ensure that perpetual inventory records properly reflect inventory on-hand throughout the year.

PROCEDURE

Proper reserves at month-end include a reserve equal to the prior annual physical inventory observation shortfall adjusted for the amount of time that has passed from the prior physical inventory observation to the estimated timing of the next physical inventory observation. The reserve should be recorded on a pro-rata basis, as described in the example below, in the month following the month the inventory was taken (i.e. if the inventory was taken on November 15, 20X1 the reserve would begin being recorded starting December 1, 20X1). Exceptions to the physical inventory observation reserve requirements: If the location experiences a gain in the prior physical inventory count, no reserve for physical inventory is necessary. If the location experienced a loss of less than $10,000 in the prior physical inventory count, no reserve for physical inventory is necessary. 1. Any shortfall in inventory shall be recognized as a charge to the income statement within cost of goods sold in SAP account 550010 / HFM account 3410. 2. The physical inventory observation reserve shall be reversed through the income statement in SAP account 550005 / HFM account 3409. Then, the process for recording the reserve for the next annual physical inventory observation should begin, if applicable, as described below. The Physical Inventory Shrink Reserve Template should be used to calculate reserve and support the general ledger balance of the reserve in the Balance Sheet account reconciliation. Any deviations from the Procedure requires approval from the Corporate Controller and must be attached as support in the business unit’s physical inventory reserve monthly Balance Sheet account reconciliation until the exception no longer applies. When the annual physical inventory observation is complete, and the Physical Inventory Observation Results Form has been approved the following adjustments shall be made in the general ledger.

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