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Three Steps to Proper Receipt of Goods Entry and Control



Receipt of goods is typical to those who work for a retailer or manufacturer. If you do too, having solid system for the task is a must. A system that ensure a proper receipt of goods entry and control is on the place. Other wise the task could become cumbersome yet results in mess inventory and accounts payable records. This post provides three steps to proper receipt of goods entry and control.

It may sound easy, the truth is not. Proper receipt of goods, in this post, means you are required to make sure about two things: (1) proper receipt of goods entry; and (2) proper control for the both inventory and accounts payable accounts. How do you perform these functions?


A big company surely has different staffs to take care of accounting treatment and internal control, separately. But if you are working for small-medium business, you will most likely end up doing both functions. Either ways, a Controller or Accounting Manager is required to make sure the purchases are correctly recorded and a sound internal control system is on the place.

Case Example

For the sake of this example, you are working for a shop that sells kids wear. So, today, a package just arrived at the front of the shop’s door, shipped by one of your supplier in China. What are you going to do with the package?

Take the following three steps:


Step#1. Perform Receipt of Goods Inspection

A package from supplier should always come with packing slip and shipping invoice—either they are attached on the package or separately delivered by the courier/shipping agent.

The packing slip contains the following information, regarding items on the package (more on s invoice a little bit later):

  • Codes of each items (be they are generic or SKU codes)
  • Description of each item
  • Specifications of each item (materials, color, sizes)
  • Quantity of each item

Your first task is to perform receipt of goods inspection—to verify each of the above information with the actual items on the package.

You may have an assistant or staff to do the task, under your supervision. In a big corporation, such task is performed by the Purchasing or Warehouse section (under the finance department). If you are a controller, overseeing and making sure the process is done correctly your responsibility.

An effective way to make sure the task done correctly and completely is by using a receipt of goods inspection work paper. If such work paper is not available, you can alternatively make a simple a check list. The staff then would need to fill the inspection work paper (or check list), as well as writing down necessary notes for any discrepancies found during the inspection, and sign the paper.

[Info_Box]Note: In the clothing businesses, buyers usually perform a quality inspection on the goods. The task is usually done by a quality assurance specialist—who has a special skill to conduct quality inspection on textiles. Big clothing retailers have quality assurance departments to make sure any merchandises received—and accepted—meets the quality standard they have.[/Info_Box]

The next task you would not forget is to communicate any discrepancies found to the seller/supplier. If a purchasing section is available then this task is also performed by a staff in the section. You may ask a replacement or discount for defects or broken merchandise. If discrepancy is happened on the quantity, then you would need to inform seller with the actual quantity—so that they can update their own record.


Step#2. Compare Shipping Invoice Vs Purchase Order

The shipping invoice also contains list of items but has unit price of each item and total value of the merchandise, without specification of each items. Other than prices, a well prepared invoice usually comes with the following information:

  • Invoice Number – This is a reference number generated by the seller, for communication purpose. You would then need to indicate/mention the number every time talking about the invoice with the seller. Most importantly is to always put the number on the bank slip when making payment for the invoice.
  • PO Number – This is usually a unique serial number that refers to the Purchase Order (PO) you (or purchasing section) issued when making the purchase.
  • Tax – Whether or not the sales tax is included on the selling price
  • Sales Term – An FOB term means you are the one who should pay the shipping, handling and clearing cost (if the shipment is covered with insurance, the insurance premium is also on your account). A C&F term means the shipping, handling and clearance cost is covered by the seller, but you still have to pay the insurance premium (if any). A CIF term means that you only need to pay the goods purchase without any additional costs.
  • Due Date – A well prepared invoice usually indicates specific due date (e.g. Due Date: October 15’ 2012). Or, at least a payment term, such as: A COD term means you have to make the payment once you receive the goods. A “Net 30 days’ means the due date is 30 days after merchandise is received.
  • Payment Instruction – A seller may require special arrangement of payment, such as: they want it to be telex transfer instead of check.

Your task on this step is to compare all of the above information to the Purchase Order (PO) you have issued (to the seller) for the merchandise. Make sure that all the above information is matched to information on the PO. You can implement the same approach as you do on the first task. Do not forget, though, to communicate any discrepancies to the seller.


Step#3. Record Receipt of Goods and Accounts Payable

Unless the goods (in the package) are completely returned to the seller, the next task is to record receipt of goods and accounts payable at whatever quantity is acceptable, by referring to the first and second steps above.

For the sake of making the step sound practical, let us assume that 10 of 500 pcs kids jacket, on the package, come with defect. Unit price of the jacket is $9. The shipment is covered with insurance premium of 1% of amount on the invoice. The purchase term according to the PO and invoice is an FOB, so you’re the one who will pay all cost related to the delivery of $260. For simplification, we don’t involve sales tax.

Ho will you record the receipt goods?

It depends on whether or not you accept the 10 pcs jacket with defects:

(a) If you accept the defected goods, then you will make the following entry:

[Debit]. Inventory – Finished Goods = $4500 (=500 pcs x $9)
[Debit]. Inventory – Shipping = $260
[Debit]. Inventory – Insurance Coverage = $45 (=1% x $4500)
[Credit]. Accounts Payable – SunCo China = $4500
[Credit]. Accounts Payable – UPS = $260
[Credit]. Accounts Payable – Insurance Provide = $45

Note: As you can see on the above entry, all of related costs to the delivery of the goods are added up to the inventory accounts—thus increase the inventory value).

(b) If you decide to return the defected goods, you will only record receipt of goods as whatever you accept:

[Debit]. Inventory – Finished Goods = $4410 (=490 pcs x $9)
[Debit]. Inventory – Shipping = $260
[Debit]. Inventory – Insurance Coverage = $45 (=1% x $4500)
[Credit]. Accounts Payable – SunCo China = $4410
[Credit]. Accounts Payable – UPS = $260
[Credit]. Accounts Payable – Insurance Provide = $45

Note: Despite of any return merchandise you make, the shipping cost and insurance premium remain the same.

(c) Instead of returning the defected jackets, you may ask for a 10% discount for example, and the seller confirmed to give the discount. Here is the entry you will make:

[Debit]. Inventory – Finished Goods = $4500 (=500 pcs x $9)
[Debit]. Inventory – Shipping = $260
[Debit]. Inventory – Insurance Coverage = $45 (=1% x $4500)
[Credit]. Inventory – Discount on Defect FG = $9 (=10% x (10pcs x $9))
[Credit]. Accounts Payable – SunCo China = $4491
[Credit]. Accounts Payable – UPS = $260
[Credit]. Accounts Payable – Insurance Provide = $45

Alternatively, you can make the following entry—which results in the same inventory value and accounts payable:

[Debit]. Inventory – Finished Goods = $4410 (=490 pcs x $9)
[Debit]. Inventory – Finished Goods = $81 (=(10 pcs x $9) – (10% x (10pcs x $9))
[Debit]. Inventory – Shipping = $260
[Debit]. Inventory – Insurance Coverage = $45 (=1% x $4500)
[Credit]. Accounts Payable – SunCo China = $4491
[Credit]. Accounts Payable – UPS = $260
[Credit]. Accounts Payable – Insurance Provide = $45


A Final Note

If the receipt goods inspection is conducted by others (the purchasing or warehouse staff), for proper control, you would always demand packing list slip, shipping invoice, receipt of goods inspection sheet and PO copy, bound together, as supporting documents, before and after making receipt of goods entry—to record the delivery.

In addition, you would need to make sure that all documents are properly signed off by a supervisor or manager. You won’t make receipt of goods and accounts payable entries if any of the supporting documents isn’t available or lack of signature. That way; not only proper entry has been made, but you also have performed proper control for receipt of goods.

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