Supplies, Materials, and Non-Inventorial Equipment
Supplies and Materials
Departments may choose to purchase and store a stockpile of supplies and materials to provide a service level commensurate with a bona fide user need and at the lowest ultimate cost to the University. Such stores should be maintained when usage is repetitive and/or there is a net economic advantage to the University which more than offsets the cost of storing and handling these supplies and materials when the requisitioner's service requirement cannot be met by direct shipment from the supplier.
Should the value of new and unissued supplies and materials in a department exceed $50,000 at one or more locations on campus or off campus, then this inventory must be recorded in an inventory account that will be the responsibility of the Department to maintain. The value of new and unissued material is based on the cost to purchase that material, unless it cannot be readily determined. The assumed flow of purchased goods is first in, first out; this method results in valuing the ending inventory at the most recent cost/price paid for supplies and materials.
This requirement does not apply to University activities selling to non-University customers (e.g., book stores, gift shops, pharmacies). Inventories associated with these activities are the only University inventories not subject to this requirement.
Non-inventorial equipment is any equipment that does not meet the capitalization requirement, which is $5,000 for a single purchased equipment; the rules for capitalization are more complex than just the purchase cost and not covered in detail in this guidance. Examples of non-inventorial equipment include laptops, desks, keyboards, computer mice, shelves, desks, and rugs. This non-exhaustive list represents items that are used over multiple fiscal years while not meeting the capitalization requirement.
More formally, non-inventorial equipment is equipment which is non-expendable, tangible, personal property acquired for less than $5,000; which is freestanding, complete in itself, and does not lose its identity when affixed to or installed in other property; and which has a normal life expectancy of more than one year.
As opposed to stockpiles of supplies and materials, there is no requirement to record on-hand amounts of non-inventorial equipment on the General Ledger, but it is recommended that departments perform such a physical verification as part of fiscal close to ensure that the quantities match the documented (expensed) amounts.
Requesting an Account for Supplies and Materials Inventory
To determine if an account needs to be requested, departments should determine the value of various supplies and materials kept on-hand to provide a service level commensurate with a bona fide user need. For some departments, this recommendation could mean checking the supply closet and confirming that the amount spent on the items in the supply closet does not exceed $50,000.
If a department determines that the amount of supplies and materials kept in-stock and available for immediate use meets the $50,000 threshold, please email firstname.lastname@example.org requesting a balance sheet inventory account.
Once the inventory account is created, the current expenditures need to be moved from the expense account to the newly created inventory account. This step will require a list of the LAFSOs that the supplies and materials were originally charged to so that the correct LAFSOs are decreased (credited) when the inventory account is increased (debited).
Using the Supplies and Materials Inventory Account
Departments whose stockpile of supplies and materials meets the $50,000 threshold have two options for recording their supplies and materials inventory:
- State the value once, at the end of the fiscal year (June 30), and reverse the entry at the start of the next Fiscal Year (July 1)
- Maintain an inventory account throughout the fiscal year
Option 1: Stating Inventory Only at the End of the Fiscal Year
If a department chooses to state their supplies and materials inventory only at the end of the fiscal year, then as part of that department’s fiscal close, a physical count of the inventory must be taken. This count is then used to support the journal for the statement of inventory at fiscal year-end.
The journal should always increase (debit) inventory and decrease (credit) supplies and materials expenses.
On July 1 of the following fiscal year, this journal would then be reversed, which would decrease (credit) the inventory account to zero and increase (debit) the supplies and materials expenses.
This year-end decrease of expense and year-start increase of expense would then repeat every fiscal year.
Option 2: Maintaining Inventory Throughout the Fiscal Year
When choosing to maintain an inventory throughout the fiscal year, the Supplies and Materials Inventory Account, at a minimum, must be updated annually to reflect the amount of supplies and materials actually in storage at fiscal close. This update is done by the department taking stock of what supplies and materials are on hand and determining the value of those supplies and materials.
- If the value is greater than the current balance of the Supplies and Materials Inventory Account, the account’s balance is increased (debited) and expenses are decreased (credited).
- If the value is less than the current balance of the Supplies and Materials Inventory account, the account’s balance is decreased (credited) and expenses are increased (debited).
This annual update ensures that the year’s supplies and materials expenses accurately reflect the cost of supplies and materials used during that fiscal year.
A more frequent and granular approach can be taken, with the Supplies and Materials Inventory Account updated monthly. The process is like the annual one but would be completed as part of the department’s monthly close process.
- If the value of supplies and materials on hand at the end of the month is greater than the current balance of the Supplies and Materials Inventory Account, the account’s balance is increased (debited) and expenses are decreased (credited).
- If the value of supplies and materials on hand at the end of the month is less than the current balance of the Supplies and Materials Inventory Account, the account’s balance is decreased (credited) and expenses are increased (debited).
This monthly update ensures that the department’s supplies and materials expenses more closely reflect the cost of the actual supplies and materials used every month.