ACCOUNTING FOR STOCK AND WORK-IN-PROGRESS IN MANUFACTURING FIRMS
This study is designed to portray the theory and practice in respect of the accounting for stock and work-in-progress is in manufacturing firms. It is helped that the knowledge presented by this study will tremendously be useful to manufacturing firms in particular and the general public.
In my attempt to achieve the aforesaid objective, the study was divided into five chapters. However, each chapter is further split into various subheadings for better presentation and clearer understanding.
There was much concentration on the evaluation of the internal control procedure for requisition, purchase, reception, storage and issue of materials, inventory control, management and valuation. The hypothesis was accepted based on the analysis of the data collected and test therein.
Stock work-in- progress otherwise known as inventories are defined by the international accounting standards (IAS)
No2 as tangible property.
(a) Held for resale in the ordinary cause of business
(b) In the process of production for such sale or
(c) To be consumed in the production of goods or services for such sale.
This stock and work-in-progress cannot be the stock of raw materials, finished goods, component parts utilized in the production process and the items that have begun the production cycle are yet to complete the production process.
Survey carried out by the accountants of international study groups in 1968 showed that stock and work-in-progress broadly called inventories, generally constitute after fixed assets, the largest balance sheet in the financial report of manufacturing firms. Expressed as percentage of net assets after depreciation, the size of such inventories is assessed at twenty six percent (26%). According to J.Fred Welton and Eugene F. Brigham,, although various occur, inventories to sale ratio is usually concentrate in 12%-20% range. As we know in accounting, opening stock plus purchase less closing stock equal the cost of goods sold this figure when subtracted from sales produces the gross party. Thus, accounting for stock and work-in-progress is of particular importance to the management of a firm since such treatment will affect both income measurement and financial statement. Adequate management and control policies enhance the growth and working capital policy of any firm
Inventories must be maintained so that a customer may be served immediately or at least quickly enough so that he does not turn to another source of supply on the other hand, production operation cannot flow smooth without inventories or work-in-progress, direct materials, finished parts and supplies. Thus inventories are used to absorb expected fluctuations in demand. This help the different part of the organization to be less dependent on each other enabling each to function effectively. The accounting task is essentially one of keeping track of all production cost incurred “under the factory roof” from the time raw materials are purchased to the time finished goods are shipped to customers. This, however includes the over heads incurred in bringing the inventories to their present location and condition which form part of the conversion cost. The necessity for adequate stock and work-in-progress recognizes the importance of optimum investment in stock and work-in-progress.