Resolve transit and count differences

Two year-end differences can look simple on a schedule. Goods are on a truck, or the perpetual record exceeds the controlled count. Neither difference names its accounting cause. Build the evidence path before posting an entry.

Read a shipping term in its contract

Start with the ordinary meaning of shipping point or destination. Then read the executed contract for the promised transfer event and any acceptance, redirection, bill-and-hold, insurance, or loss terms. Match those terms to the bill of lading, carrier acceptance, delivery record, and events after year-end.

Record one supported transfer date for both sides. The buyer's inventory and payable must align with the seller's control transfer, revenue, and cost of goods sold. If material evidence conflicts, leave the item open instead of using the invoice date or physical location as a substitute.

ASC 606-10-55-82 directs the entity to determine when the customer obtains control. It says the contract may place that event at shipment or delivery. An FOB label therefore directs the review but does not finish it.

Name the difference before naming its cause

A perpetual system provides a book quantity and cost. A controlled physical count provides observed goods, subject to rights, condition, and count controls. Subtract the supported count balance from the supported book balance. Call the result a book-to-count difference until the investigation supports a cause.

Test:

• count sheets, tags, duplicate counts, and units of measure;
• receipts and shipments around the cutoff;
• consignment, returns, transfers, and third-party locations;
• damaged or obsolete items;
• purchase, sale, and adjustment postings; and
• evidence of loss, theft, or spoilage.

Correct an identified recording or cutoff error through the accounts that the error affected. Record shrinkage only when the investigation supports an inventory loss. The account used for that loss follows the entity's supported policy and facts.

Compare what each recordkeeping system reveals

A perpetual system can expose the difference because it retains a book balance before the count adjustment. A periodic system derives ending inventory from the count. Missing cost enters the cost-of-goods-sold residual unless other records identify it. Neither system proves the count, ownership, or cause.

Release the inventory population only after every material transit and count difference has a conclusion, evidence owner, reviewer, related account, and open-fact status. Use the two Cedar Trail examples, then complete both practice items without copying their conclusions.