Stock

Definition and stakes

Definition

Stock represents the whole of the goods which intervene in the operating cycle of the company either to be sold in the state, or at the end of a production process to come, or in progress, or to be consumed with the first use.

Stocks can represent the commercial value at a given time of the goods which a company markets. In industrial environment, there exist several types of stock, each one on another level of manufacture. Principal stocks are:
the stock of goods : stocks of the tradesmen (resale for benefit of articles without added-value of transformation by the company).
the raw material stock: it represents the articles which were bought near suppliers for a transformation ultérieure.
the stock of the products in the course of manufacture (semi-finished): it represents the articles which are not saleable. They must still undergo transformations.
the stock of the finished products (or “end products”) : it represents the articles which the company can sell after having them fabriquées

Stakes

The objective of the stock is to manage the articles available in the company in order to satisfy the needs to come. These needs will be to satisfy the good moment, in the good quantities and in a manner allowing the good use of stock. If one is not able to satisfy a need using corresponding stock, one speaks about stock shortage . All the art of this management is to have sufficient stock to meet the needs correctly and not too much not to support the various costs of stock (cost of acquisition, storage cost, cost of devalorization, etc).

We can distinguish three finalities from stock:

stock of transaction , to optimize the costs of transaction and the costs of stockage
stock of precaution , to avoid the rupture of stocks
stock of speculation , to benefit from the movements of prix.

Methods evaluation to fine accountants

Accounting according to the standards IAS/IFRS

Standard concerned

Standard IAS 2 establishes the evaluation and the accounting of stocks.

Evaluation of the stock entries

the cost of entry of one stock in the active is consisted of:

Costs of acquisition which are the purchase prices of the raw materials, supplies or goods to which add the possible transport costs and of handling, the customs duties and other taxes nonrecoverable.
Processing costs which are the costs added to the cost of acquisition in order to arrive at the production costs determined by the Cost accounting.
Costs incurred to bring stocks to the place and in the state where they are.

the costs obligatorily excluded from the cost of stocks are:

Expenses of marketing such as the publicity and the cost of the commercial personnel.
The expenses which do not bring stocks to the place and in the state where they find.
Abnormal consumption (exceptional raw materials, maintenance…).
Storage costs nonnecessary to the production process.

Method evaluation of the amount of stocks to be entered

To obtain the real costs of stock (to be entered) 3 great types of methods are authorized. (according to standards IAS/IFRS)

Them (3 or 4) methods of the real costs (by retaining the really committed production costs or of acquisition).

periodic balanced average Unit costs (CUMP): The unit costs of exit of articles of stock are equal to the sum (of the initial value + those of stock entries) divided by the sum (of initial quantity and those of stock entries). If they are stocks of end products, the unit costs of entry will be the production costs (see for its determination the Cost accounting).

entered First, left first (FIFO, French PEPS): The unit costs of exit of a type of article of stock are equal to the value of the article which entered in first chronologically stock. An article enters to 10€ then 20€, it will leave in first to 10€.

Last in, first out (LIFO): The unit costs of exit of a type of article of stock are equal to the value of the article which entered in the last chronologically stock. An article enters to 10€ then 20€, it will leave in first to 20€.

fallen Premier left first (First expired first out (FEFO)): this tolerated management style is particularly adapted to the products with a DLC (Deadline of Consumption) or a DLU (Deadline of Use). Taking into account of the deadline entered the system to carry out the exits.

the method of the standard costs which calculates the value starting from the normal levels of use of raw materials, labor, efficiency and capacity.

method of the retail price (or retail method)

For each group of homogeneous products, one determines an average percentage of gross margin. The value of stock, by category of homogeneous products, is obtained by deducing from the sales the gross margin thus calculated.

Accounting according to the French chart of accounts

Obligation of inventory

An annual inventory must be carried out regularly once every 12 months (in France: Code trade article 123.12 of the commercial law) for very undertaken having the quality of tradesman. He is controlled by an auditor (and this because of the accounting policy of specialization of the exercises). In a more general way, it is useful to carry out an inventory of stocks regularly in order to make sure a certain homogeneity of the value of stocks between the financial years. The goal is also to confront the accounts with the direct observation. This inventory and the intermittent physical inventory is generally recommended for the General ledger.
The permanent book inventory is an organization of the accounts of stocks which, by the continuous recording of the movements, makes it possible to regularly know, in the course of exercise, what exists quantified to quantities and value. This inventory is generally recommended for the Cost accounting.

Evaluation of the stock entries

The weakest amount enters the cost or the net amount of realization (always the net amount of realization for the agricultural produce, of forest and minerals).

Cost = price of acquisition + fresh accessories + fresh necessary so that stock arrives in state or it trouve.
Not to include the abnormal amounts, the storage costs except exploitation, the overheads administrative nonuseful for stocks (loan) and the expenses of distribution and exchange.

Method evaluation of the amount of stocks to be entered

Only the methods CUMP and FIFO (PEPS) are regarded as " légales" by the French tax department (see above for calculation).

Technique of accounting

The loads (bought stocks) and produced (sold stocks) entered during the year must be extournés at the end of the exercise. This writing can be realized in the form of a variation of stocks noted with the inventory. A way simple to enter is of extourner the amount of the opening inventory in a first writing n the other hand of a management account of purchase (bought stocks) or sale (sold stocks). Then to enter a writing reverses for the amount of the ending book inventory. These writings can be carried out in once by noting the inventory change . We will note an impoverishment if bought stocks have augmentés.
We will note an enrichment if stocks to be sold have augmentés.
We will note a reduction in impoverishment (more account of load on the right) if bought stocks have diminués.
We will note an enrichment (more revenue account on the left) if stocks to be sold have diminués.

Methods evaluation at ends of financial analysis

The value of stock influences the treasury and in particular the Besoin in working capital.

The value of stock = Ownership cost + cost of inventory control

the ownership cost = unit storage cost * stored average Quantity.

the unit storage cost corresponds to the sum of:

fixed Costs: (Unit Purchase price + fresh of unit routing) *% of the Average costs balanced of the capital.

and unit variable Coût: of storage

the stored average quantity corresponds either

Annuellement to (opening inventory + ending book inventory) the /2 or

with the quantity to store average: Ask (assembling deliveries) /2

the cost of management = unit cost of launching * many deliveries of articles

the cost of launching (of transaction) is for example the making of the orders, transport, the administrative treatment…

The Formule of Wilson can be found starting from this valorization.

Methods of management of stocks

The logistic valorization of stock allows its management

mathematical Tools allowing to avoid the stock shortage.

The calculation of the stock of alarm:
This re-order level corresponds to the level of the stock which starts the order. It is equal to the strategic stock plus the stock consumed during the time of livraison
The calculation of the Stock strategic:
This threshold is assumed to decrease the risk of rupture.
The rate of rotation:
Many renewals/durée
The rate of rupture:
Requests nonsatisfied/requests totale
The service rate:
Probability of (nonsatisfied 1-requests) /demande total

technical Tools allowing to avoid the stock shortage.

the Juste-with-time or flow tightened
the Kanban
technology RFID. An academic analysis carried out at Wal-Mart showed that the RFID can reduce the ruptures of inventory of 30% for the products having a rate of rotation between 0.1 and 15 units/day.

The inventory turnover on sale

For an article considered, the ratio of the sales (for a given period) on average stock (during this period) makes it possible to detect the articles which are sold little (ventestock).

Formulas:

Ratio of the sales:

Ratio of the sales of a good = nap of the sales over a given period/stock cumulated over a given period

Ratios of inventory turnover

Stocks of goods (in days of CAMV*) = (Stocks of march. /CAMV*) X 360

Stocks of raw materials (MP) in days of consumption = (Stocks of MP/consumption) X 360

Stocks of products (in days of cost price) = (Stocks of products/cost price) X 360 (*)

(*) CAMV = Cost of Purchase of the Sold Goods

Dependant references, terms and external bonds

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