ABSTRACT
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.
CHAPTER ONE
INTRODUCTION
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.