PROVISION FOR BAD DEBTS

Definition:

A provision for bad debts is a type of account for

safeguards established by many companies. The main function of
this type of account is to provide a buffer against the bills of
customers who are pending payment for prolonged periods of
time. Companies usually base the amount of reservations that
they are maintained in the account in the evaluations of high customers
risk and the probability that customers will not be able to honor the invoices.

It is important to note that the normal function of a provision for

bad debts are not allocated to cover the outstanding balances in the
invoices that are currently less than six months old. Until
At that moment, the collection efforts are normally carried out,
including attempts to reach payment agreements with clients who have
suffered some type of financial investment. Many companies do not try to
make use of the funds in the doubtful provision account until it
determine that the outstanding balance is unlikely to be collectible.

Often, the account will be managed as an item within the

operating budget or as a category within the
accounts receivable, and structured to allow for easy transfer in the
accounts receivable when necessary.

While a provision for bad debts is a

common strategy employed by large corporations, small
companies can also benefit from establishing this type of budget
online accounting. View of the reservations, on one side, and a set of
clear guidelines regarding when the reservations can be used are
very important. Many companies also ensure that at least
Two employees of the company can authorize the transfer.
creation of resources to offset debts that cannot be
collected help to ensure that the company can continue to comply
with their own debts, thus avoiding late fees or damage to the
company credit rating.

Petty Cash

THE PETTY CASH AND/OR SMALL CASH FUND.

The term Petty Cash refers to the available funds that the Cashier has within the
internal control, in order to make petty cash payments and others,
always in cash, for that a fund called FIXED FUND is established,
which constitutes a fixed amount of money (except for later increases),
created by management prior to the start of operations, to be
used in the management of petty expenses, through disbursements
authorized amounts are periodically restored to their original value, which
Due to the accounting, it is not recommended to directly affect the Central Box.
They are also called Petty Cash. And this is done by turning a...
check for a fixed amount, responding when part has been spent or
totally from these funds, and so on.

Classes of Petty Cash and/or Fixed Funds.

The Petty Cash can have two types of funds:

a).- Petty Cash with Fixed Fund

b).- Petty Cash with Variable Funds

Petty Cash with Fixed Fund.

It is said that the Petty Cash has fixed funds when at the beginning of the
a fixed amount is set to assist the
minor expenses, which must be replaced the same amount each time it is
go spending. Yes we have saying
that this fund cannot be increased or decreased during the period.
Unless the Manager or the businessman determines the best way to
manage said funds.

2. Petty Cash with Variable Fund.

It is said that the Petty Cash has variable funds when at the beginning of the
operation or within a specified period a quantity is assigned
superior or inferior to cover the minor expenses of the company; these
funds they are of agreement a the
Need for the same or the payment volume that needs to be covered within
a reasonable time, that is to say it can vary.

The fixed fund system works as follows:

a).- A specific amount of money is established (fixed) and/or (variable)

to make small amount payments.
Photocopying expenses
 Expenses for purchasing medications for the first aid kit
- Taxi expenses - urban tickets
Expenses for magazines and newspapers
Mail shipments
Telephone call expenses
Expenses for cleaning services
Cleaning supplies expenses
It can be considered as payment for the purchase of supplies.
exceptionally
Payments of salaries, taxes, and other etc.

b).- This type of expense is paid in cash.

c).- Periodically (weekly, biweekly, or monthly) the funds are replenished

To do this, it is advisable to prepare a format that is used.
to request the replacement of the funds (called Expenditure Receipt)

Technical Aspect

The Internal Control of the Petty Cash must be done, taking into account the
next:

Through a memorandum from Financial Management, it authorizes the

creation or increase according to their requirements an amount
determined, taking into account the flow of petty expenses and/or to
to carry out.

Always adhering to the Banking Law and the Tax on Income

Financial Transactions - ITF, according to Law No. 29194.

The petty cash book is unsuitable for minor expenses and

urgent Company Diaries, such as: Local Mobility, Mobility
Interprovincial when workers work at a national level within the
Territory of our Republic, Office Supplies, Cleaning, purchase
of useful of First aid kit y
Medications, Daily Newspapers, Travel Expenses, Phone Calls,
freight packaging, other minor and unplanned urgent expenses.

Purchases of Supplies and others, nowadays some companies it

they are using this petty cash for payments of larger amounts like
example Salaries, Taxes, Purchases of Goods etc.

There is a book with the markings of this small box: Consisting of the following
columns.
1.- Column for the operation date.
2.- Column for details or explanation
3.- Column for numbering of documents and/or receipts.
4.- Column for entries or replenishment of funds.
5.- Column for the outputs or payments made.
6.- Column for distribution of payments, in sales expenses and
Administration.
7.- If this Book cannot be obtained and/or scratched with the columns
necessary, a relationship will simply be made, containing the most essential
for the compliance of Internal Control (date of receipt of the checks
of Replacement and/or start, coding of the paid documents, and/or
outgoing, recorded in the Purchase Register and paid in cash.
If there are any, forming in two columns Income and Expenses, always
including the previous balance and determining the balance for the future
accountability of Petty Cash and/or Fixed Fund.

The amount of the petty cash is renewable, expenses are settled as they are used and
it is automatically reimbursed for the same amount spent, so that it
always keep the amount set according to the memorandum, that is why it
call fixed fund. Use a voucher to make the accounting entry.

The Petty Cash will be managed by a cashier; this fund must be

carefully safeguard its use, it must be spent on the purposes and
company purposes. legal tender. Exclusively for purposes
of the company.

A maximum limit for payments to be made should be established for

petty cash. Those that exceed this limit must be paid by checks.

This account will only move when it is decided to increase or decrease.

the background, or for its elimination.

The theory unit may issue checks in the month only up to three.
sometimes the amount constituted for the fund, regardless of the number of
documented renditions that could be made during that period.

The replenishment of the fund amount must be requested in the

opportunity that has spent a maximum of 80% of the allocated amount and
it will be equivalent to the surrender supported by the documented
duly authorized documents that certify the disbursements made, prior to
and evaluation by the manager or immediate supervisor regarding the concepts
paid of which evidence must be left in the Petty Cash Book and in the
payment receipt and/or statement of sustenance of paid expenses.
 There should be only one person responsible for petty cash. Fidelity
of the personnel that applies the company's policies.

The person responsible for the petty cash. Employee loyalty that
apply the company's policies.

The person responsible for the petty cash should not have access to the
Accounting, neither the Collections, nor to the Main Cash

The reimbursement of the fund will be made by cheque in favor of the

person responsible for it
The fund will be charged to each of the expense or cost accounts,
according to what is specified in the receipts paid by petty cash

The receipts must be numbered consecutively as

internal control, all discharge documents must be approved
previously by another authorized person and will specify in numbers and letters,
the amount paid.

The sole responsible must record the movement of the Fixed Fund in the
petty cash book to facilitate the determination of the daily balance
and the corresponding audits.

This small cash book focuses on the tabular cash book and/or
Italian, except for the Transfer seats, which will be registered in the
Diary Book.

The transfer in summary every two weeks or at the end of the month
it is called centralization.

Any abnormality detected will be communicated in writing to

administrator and Finance Manager or the Financial Manager for the
corrective action.

FROM THE CASH REGISTER FUND RECONCILIATION

Surprise audits of the Petty Cash Fund will be carried out.

to verify if the assigned amount is in accordance with the existence of
documents and cash.

Surprise audits will be conducted when circumstances require it.

they require it and it will be in charge of the Internal Audit Office and the
Treasury Department.
 The results of the audits will be made known to the
Management of the Area and General Management, so that action is taken if necessary
necessary, the corrective actions of the case.

BANK RECONCILIATION

It consists of comparing the records of the operations with

the Banks, from our books with the recorded movements in the
Banks, shown in the Monthly Account Statements issued by them
institutions, to proceed withto dothe necessary corrections or adjustments
in the company's books.. This is done because it is common for the
balances of said account statements of the Banks do not match with those of
our books for any of the following reasons:

• Pending checks to be collected by the beneficiaries of the

same.
• Last minute deposits that the Company made and that the Bank did not.
registered for having closed.
• The books of current accounts, to prepare the year-end statements
of my.
• Numerical errors or omissions in the Company's books
• Third-party cheques that the Bank charges by mistake
• Checks returned for lack of funds or any other reason.
• Charges that the Bank incurs due to interest, commissions,
taxes, etc.
• Payments made to the Company by the Bank for the concept of
interests, collections made on your behalf or any other concept
• Errors or omissions by the Banks

There are different methods of reconciliation:

Four Columns Method.

It consists of creating a sheet with four columns. Two for

the account in the Company's books and two for the same account in the
bank books (with Debits and Credits). This procedure allows you to see
clearly the adjustments that need to be made in the company's book.
Example: After reviewing the Monthly Bank Statement of
Venezuela and the company records, the following are found
differences:

Reconciliation for Adjusted Balances.

 It is a two-stage reconciliation. In the first stage, the balance is taken from the
Bank Statement corrected to the correct situation, after making the
corrections in the company's books, according to the operations
pending registration at the Bank. In the second stage, they are taken to the
the balances of the Company's books at their real value, noting the
transactions that the Company had not recorded.

The Bank account balance in the Company's Ledger is adjusted by

the following way:
• Adding up all the credits that the company only knows when
Receive the Bank Statement, such as: effects to collect
from the Company that the Bank charged and credited to the account, credit for
interests, errors or omissions.
• Subtracting the charges that the bank has made in your favor, such as
commissions, returned or canceled checks, etc.
Similarly, adjustments are made to the account statement sent by
the bank
• Adding the charges that the Company would have made, which do not
such as errors appear in that statement or u
omissions or last-minute deposits.
• Subtracting credits that do not appear such as pending checks
of collection, errors or omissions.
Reconciliation for Found Balances

It is a reconciliation that consists of adjusting the balance of the State of

Bank account, until reaching the balance that shows the bank account at
the general ledger of the Company, that is:

• The Last Deposit Charges are added to the bank balance

hour, made by the Company and the Charges made by the
Bank that the company has not taken into account, such as:
commissions, interest, errors or omissions.
• The credits are deducted for: Checks issued by the Company and not
presented for collection and the deposits made by the bank do not
taken into account by the company (interests, collections made by the
bank in the name of the company.

METHODS FOR PREPARING A BANK RECONCILIATION.

Examples

Correct balances
 Compare the bank statement sent with the records
recorded in the company's bank ledger, to then proceed
to adjust the differences until both balances are equal. To
start preparing said document by said method is essential
the importance of knowing the presentation and structuring rules
of the body of it:

First, the 'Unregistered Items in the Bank' are presented, where

the unrecorded transactions by the bank are included and only
take into account in this line the:
Checks in Transit: or pending checks, are those that
consequence of having issued a check but as of the date of
Carry out the reconciliation, it has not been collected by the
beneficiary at the bank, so it will appear Credited in the books
from the company and will not be Charged on the bank statement
until it is collected.
1.b). Deposits in Transit: these are the deposits that are made but not yet processed.
They are sent at the end of the month and these are not credited.
bank for what will be Charged in the company's books but
not in the account statement of the month.
Secondly, the 'Unrecorded Items' are presented where
include the unrecorded or omitted items by the company where
are located:
2.a). Credit Notes: are all the payments made by
from the bank for the concept of: discounts on transfers, pledges,
receivables, interest in favor of the company, among others, but that are not
they have loaded into our books.
2.b). Debit Notes: They are charges made by the bank to the
company for the purpose of: collection of interest, commissions, effects
discounts returned, among others, that have not been received.
respective information has not been recorded in the books of
the company.
2.c). Omitted or Unregistered Checks: these are the checks that are
they really issued but were never recorded in the books
of the company.
2.d). Omitted or Unrecorded Deposits: these are the deposits that are
they did it but their corresponding registration was not done.
Third, the 'Errors' must be presented, where all the
adjustments for mistakes that both may have
matched documents:
3.a). Company Errors: this is where the adjustments are included.
all the errors and mistakes on the part of the company, among the
which ones do we have:
1) Cheques of different amounts: these are the checks that are credited.
with an amount above or below the issue amount.
 2) Deposits of different amounts: these are the deposits that are
they charge with an amount above or below the amount of
issue.
3) Misplaced checks: these are the ones that instead of being cashed
they loaded.
4) Poorly located deposits: these are those that instead of being loaded
were credited in the company's books.
5) Debit and Credit notes misplaced: these are those that by mistake
They are charged instead of being credited and vice versa.
6) Deposits or checks from other banks: those that are made by mistake
they are either recorded or credited in the books, but they do not correspond to that
account or bank, since one can have various accounts in
various banks.
7) Expired Checks: these are checks that reach their
due date and they still haven't gone to collect in the
bank, so they must be removed by charging them
for the amount of it.
3.b). Bank Errors: although they are not very common, here we
include adjustments for all omissions, errors, and mistakes
on the part of the Bank, among which we have:
1) Cheques of different amounts: these are the checks that are charged
with an amount above or below the issuance amount.
2) Deposits of different amounts: these are the deposits that are
they pay an amount above or below the amount of
emission.
3) Omitted or unregistered checks: these are the checks that are
they were actually issued but were not recorded in the state of
bank account.
4) Omitted or unregistered deposits: these are the deposits that are
they were indeed issued but were not settled in the bank.
5) Misplaced checks: these are the ones that instead of being charged...
they paid.
6) Misplaced deposits: those that instead of being credited were
charged on the bank statement.
7) Misplaced Debit and Credit Notes: those that are misplaced by error
they are charged instead of being credited and vice versa.
8) Deposits or Checks from Other Companies: these are those that due to
errors are charged or credited to the bank, but do not correspond to
that account, since a bank has various clients.

Important: the order from 1) to 3) must be presented exactly as shown.

here, contrary to its numerals or breakdowns whose order can be
Anyone, the main thing is that all necessary adjustments are reflected.
to achieve the correct or found balances.
Example of a reconciliation prepared using the balance method
correct

Movements of July in the general ledger of Banco Bolívar

Strong belonging to El Trébol C.A.:

BANK OF BOLÍVAR FUERTE GENERAL LEDGER CURRENT ACCOUNT No. 5698-

ACCOUNT CODE No: [Link].02 22356-96
MOVEMENTS JULY 2006
DATE CONCEPT SHOULD NEWS BALANCE
01/07/06 Balance 230,000.00
01/07/06 Correction of Deposit No. 166,500.00 396,500.00
1956
01/07/06 Correction of Check No. 122600.00
4505
02/07/06 47.700,00 226.200,00
04/07/06 Deposit No. 3984 180,000.00 406,200.00
06/07/06 N.C. Discounted effects 100,000.00 506,200.00
14/07/06 55,000.00
20/07/06 52.000,00 399.200,00
25/07/06 Deposit No. 4866 130,000.00 529,200.00
28/07/06 65,500.00
30/07/06 Deposit No. 5698 78,000.00 541,700.00
28/07/06 15,800.00
31/07/06 Deposit No. 6892 40,000.00 565,900.00

Account statement sent by the bank as of July 31, 2006:

BOLÍVAR FUERTE BANK S.A.C.A. CONTROL NO 3377233
Capital Bs. 280,000,000.00 THE CLOVER C.A.
STATEMENT OF ACCOUNT Account code No. 5698-22356-96
SINCE January 7, 2006 PAGE 1/1
31/07/2006
DATE CONCEPTS Charges Credits BALANCES
JULIO Balance 185,900.00
01 Deposit No. 2365 153.800,00 339.700,00
02 Check No. 4508 47,700.00 292,000.00
05 Deposit No. 3984 180.000,00 472.000,00
06 N.C. Discounted effects 100,000.00
06 N.D. Collection expenses 5,000.00 567,000.00
15 Check No. 4506 25,000.00 542,000.00
20 Check No. 4510 25,000.00 517,000.00
25 Deposit No. 4866 130.000,00 647.000,00
30 Deposit No. 5698 78.000,00 725.000,00
 Reconciliation that was carried out last month to adjust the balances,
Note that they already have a different balance from the beginning, 230,000.00 Dr.
according to books and 185,900.00 according to bank Cr.

THE CLOVER C.A.

BANK RECONCILIATION
BOLÍVAR FUERTE BANK AS OF 30/06/06
CURRENT No. 5698-22356-96 METHOD: CORRECT BALANCES
DESCRIPTION Partial BOOKS BANK
Balances as of 06/30/06 230.000,00 -185.900,00
CHECKS IN TRANSIT
17/06/06 25,000.00
20/06/06 40,800.00 65,800.00
DEPOSITS IN TRANSIT
30/06/06 Deposit No. 2365 153,800.00 -153.800,00
Company Errors
Deposit No. 1956 registered 18,500.00
Deposit No. 1956 correct 185,000.00
Check No. 4505 misplaced 61.300,00 -122.600,00
CORRECT BALANCES AS OF 30/06/06 273,900.00 -273,900.00

As can be seen in the previous reconciliation, the adjustments were made to the
balances of the books and the bank until they matched, which
it turns out to be the end of reconciliation.

First, the items that were adjusted must be checked in the

past reconciliation, to which it should be inspected if such items already
they were settled, otherwise they should be taken into account for the
current reconciliation.

In this way, it can be noted that check No. 4506 has already been cashed by its
beneficiary on July 15, contrary to No. 4507 which still does not appear in
the account statement as collected, so if the check has no date
Upon expiration, it is considered to still be in transit.

Also see that deposit No. 2365 was recorded in the books.
from the bank to the value recorded in the books, in case there is any difference in
the deposits or checks in transit, it is proceeded to determine whose they are
the error, because if such a case occurs, either by omission or difference in
quantity, the adjustment of such items should be reflected in the reconciliation of
month of July.

Company errors were also recorded in the ledger.

from the Bank, so they will not be taken into account for adjustment.
 Now, the differences that arose are reviewed as
consequence of the operations carried out in the month of July, so that
it is checked game by game, in this example the following are found:
as checks in transit are numbered 4507 from last month, and number 4509,
4511 and 4512 of this month, as deposits in transit we only have number
6892, there is a Debit Note for collection expenses of the effects
discounted that was not registered, and finally we found a difference
in check No. 4510 which was recorded in the books for Bs. 52,000.00 and
it appears charged for Bs. 25,000.00, with an analysis of the supports
it was deduced that the error was from the company.

Upon finding the items that are going to be adjusted, the process proceeds to make the
internal control document

THE CLOVER C.A.

BANK RECONCILIATION
BOLÍVAR FUERTE BANK AS OF 07/31/06
CURRENT NO. 5698-22356-96 METHOD: CORRECT BALANCES
DESCRIPTION PARTIAL BOOKS BANK
Balances as of 07/31/06 565,900.00 -725,000.00
CHECKS IN TRANSIT
20/06/06 40,800.00
14/07/06 55,000.00
28/07/06 65,500.00
28/07/06 15,800.00 177,100.00
DEPOSITS IN TRANSIT
31/07/06 Deposit No. 6892 40,000.00 -40,000.00
DEBIT NOTES
06/07/06 Collection Expenses 5,000.00 -5,000.00
COMPANY ERRORS
Check No. 4510 registered 52,000.00
Check No. 4510 correct 25.000,00 27.000,00
CORRECT BALANCES AS OF 31/07/06 587,900.00 -587,900.00

Now let's look at the same document but with four columns:

THE CLOVER C.A.

BANK RECONCILIATION
BOLÍVAR FUERTE BANK AS OF 07/31/06
CURRENT No. 5698-22356-96 METHOD: CORRECT BALANCES
DESCRIPTION BOOKS BANK
MUST THE NEWS MUSTNEWS
Balances as of 31/07/06 565,900 725,000
 00 00
CHECKS IN TRANSIT
20/06/06 40,800.0
0
14/07/06 55,000.0
0
28/07/06 65,500.0
0
28/07/06 Check No. 4512 15,800.0
0
DEPOSITS IN TRANSIT
31/07/06 40,000.0
0
DEBIT NOTES
06/07/06 Collection Expenses 5,000.00
Company Errors
Correction of Check No. 4510 27,000.0
0
SUBTOTALS 592.900, 5.000,00 177.100, 765.000,
00 00 00
CORRECT BALANCES AS OF 31/07/06 587,900 587,900
00 00

As can be seen, the adjustments are made in four columns without

do not put any negative sign because this way is completely
unnecessary, the sub-totalization is carried out where it is summed vertically
all the columns to then extract the final balance through the
difference between both, both in books and in the bank.

Found balances

This method is based on the preparation of the reconciliation starting

with one of the two balances, (the Bank's or the Company's), to then
reflect in a single column the differences, deposits, or checks that
compensate for the discrepancies between the two, so that in the end it can be found.
in the contrary balance, which turns out to be the purpose of this method.

To exemplify, we will take into account the previous one, so

I will highlight the presentation of the document.

THE CLOVER C.A.

BANK RECONCILIATION
BOLÍVAR FUERTE BANK AS OF 31/07/06
Current No. 5698-22356-96 METHOD: BALANCES
FOUND
DESCRIPTION PARTIAL TOTAL
BALANCE ACCORDING TO BANK AS OF 07/31/06 725,000.00
CHEQUES IN TRANSIT
20/06/06 40,800.00
14/07/06 55,000.00
28/07/06 65,500.00
28/07/06 15,800.00 -177,100.00
DEPOSITS IN TRANSIT
31/07/06 40,000.00 40,000.00
DEBIT NOTES
06/07/06 Collection Expenses 5,000.00 5,000.00
COMPANY ERRORS
Check No. 4510 registered 52,000.00
Check No. 4510 correct 25,000.00 -27,000.00
BALANCE ACCORDING TO BOOKS AS OF 07/31/06 565,900.00

It began with the balance of the account statement (Bs. 725,000.00 Cr.).
Then all the adjustments were reflected just like the previous method, but
in a single column, until at the end the balance of the ledger was 'found'
of Bank (Bs. 565,900.00 Dr.).

INVENTORY METHODS

Concept
It represents the existence of movable and immovable property that the
company to trade with them, buying and selling them as they are or
processing them first before selling them, in an economic period
Determined. They must appear in the Current Assets group.

Inventory Classes
According to the characteristics of the company, we find five
types of inventories:

Inventory of Goods:
It consists of all the assets that belong to the company.
whether commercial or mercantile, which they buy to then
sell them without being modified. This Account will show all the
goods available for sale. Those with other characteristics
and being subject to particular conditions must be shown in accounts
separated, such as goods in transit (those that have been
purchased but not yet received), the goods given on consignment or
the pledged goods (those that are owned by the company
but have been given to third parties as collateral for value that has already been
received in cash or other goods).
 Finished Goods Inventory:
They are all those assets acquired by companies
manufacturers or industrials, which are transformed to be
sold as processed products.

Inventory of Products in the Manufacturing Process:

It includes all those assets acquired by the companies.
manufacturers or industrials, which are in the process of
manufacturing. Its quantification is made by the amount of materials,
labor and manufacturing expenses, applicable as of the closing date.

Raw Materials Inventory:

It is made up of all the materials with which they are produced
products, but that have not yet been processed.

Factory Supplies Inventory:

They are the materials with which the products are made, but that
cannot be quantified in an exact way (Paint, sandpaper, nails,
lubricants, etc.).

INVENTORY METHODS

There are two inventory accounting methods, which allow us

they allow determining the cost of the merchandise sold. These are:

Periodic inventory:

It is the one carried out at the end of the financial year and consists of the
physical counting of goods and the assignment of their values. When
To verify the Continuous Inventory, it can be practiced at any time.
moment. The execution of this inventory method is carried out in
two stages: preparation and implementation. The first consists of the
organization of work: planning, arrangement of products,
staff training, etc. The second involves counting
properly speaking of the articles, the record in the inventory sheets and
the assessment of them.

Perpetual or Continuous Inventory:

It consists of keeping a record that shows at all times the

quantity and value of the inventory in stock. The changes in the
Inventory is recorded as it occurs, through debits and credits.
In the inventory account, this method does not use any account of
Purchases. When a merchandise is sold, two entries are required.
countable

1.- For the Sale (registered at the sale price)

2.- Due to the reduction in inventory (recorded at cost).
An illustrative example would be:
A company that trades in televisions, which it purchases wholesale in
Bs. 70,000 each and sells them at retail for Bs. 80,000 his entry would be:
4 units
Purchase in the period - 10 units ............................ Bs. 700,000
Sold in the period - 9 units:
Selling price ............................................... Bs. 720,000
Cost of goods sold .......................... Bs. 630,000
5 units
Inventario Inicial: 280.000

NEWSPAPER PERPETUAL

RE DESCRIPTION MUST NEWS THERE MUST BE

F
a) Purchases 700,000
b) Accounts for 700.00
to pay 0
a) Inventory 700.00
0
b) Accounts for 700.00
to pay 0
a) Accounts for 720,000
Charge
b) Sales 720.00
0
a) Accounts for 720.00
Charge 0
b) Sales 720.00
0
c) Cost of 630.00
Sales 0
d) Inventory 630.00
0
Adjustment entry (final inventory determined by physical count)
Inventory
Sales Cost ................................ Bs. 630,000
Bs.280.000
Bs.700,000
Closing entry (Periodic Inventory)
Sales
Sales Cost ................................. Bs. 630,000
Gains and Losses......................... Bs. 90,000
Closing entry (Perpetual Inventory) (*)
Sales
Sales Cost ................................ Bs. 630,000
Profits and Losses......................... Bs. 90,000
PARTIAL STATEMENT OF PROFITS AND LOSSES
Bs. 720,000
Sales Cost.............................. Bs.630,000
Gross profit on sales............. Bs. 90,000
(*) The same entry is used for both methods.

In most cases where the inventory method is used

a continuous record is kept, in quantities, for each one
of the different types of items available for sale. A model
simplified can have the following presentation:

INVENTORY CARD

Televisions
------------ QUANTITIES ------------------ ------------------ VALUES
--------------------
Date Purchased Sold Existence Charges Credits Balance
as s ia
January 20 4 280,000
1985
10 14 700,000 980,000
9 5 630,000 350,000

THE EVALUATION OF INVENTORIES

Among the most important methods for evaluating inventories, we have:

• Cost or Market the Lowest: The price is taken as a base
lower of cost or market, maintaining the accounting principle of
 Conservatism which does not anticipate benefits and foresees possible
losses.
• The FIFO or PEPS Method: This method is based on the fact that the first
what comes in is the first to go out. Its appreciation adapts more to the
market reality, since it employs a valuation based on
most recent costs.
• The LIFO Method or FIFO: Considers that all merchandise
what comes in last is the first to come out. Its advantage is based on
that the inventory maintains its stable value when an increase occurs
in the prices.
• The Arithmetic Average Cost Method: The result will be given by the
arithmetic mean of the unit prices of the items.
• The Method of Harmonic or Weighted Average: This average
It will be calculated by weighting the prices with the units purchased,
to then divide the total amounts by the total number of units.
• The Moving Average Cost Method or Balance: Calculates the
value of the merchandise, according to the variations produced by
the entries and exits (purchases or sales) obtaining averages
successive.
• The Basic Cost Method: Through this method, one can...
they assign fixed values to the minimum stock, this method is
quite similar to LIFO with the difference that it is applied
only to the minimum inventory amount.
• The Retail Selling Price Method: It allows for the estimation of
inventories with the desired frequency. The physical inventory is
will practice, based on the selling prices marked in the
articles.

U.E.P.S: TRADITIONAL

The U.E.P.S. method assigns costs to inventories under the assumption

that the goods acquired last are the first to be
to be used or sold, therefore the cost of goods sold
it will be valued at the last purchase prices with which they were
acquired the items; and conversely, the final inventory is
valued at the purchase prices of each item at the moment they are
he gave the same.

Among the benefits that this method offers for tax purposes
we can mention the following.

• The recognition of the most recent costs of the items

sold. These imply that when assessing the cost of the
merchandise sold will apply the latest purchase prices, and in
 economies like ours have been shown that prices tend to
to rise, which causes the CMV to be greater than if it is valued at
older prices, for this reason the profits tend to
decrease and therefore the payment of income tax will be
younger.
• The valuation of the final inventory for each period generates an amount.
less than what would result from applying any other method of
valuation, as the older purchase prices are used according to the
extract to which it refers.

Difficulties of the U.E.P.S methodology when it comes to its application:

• Diligence of the same since it requires meticulous control for each

product line.
• The significant reduction in the quantity of some items of
inventory while other similar ones increase do not compensate for their
valuation but on the contrary tend to disappear the U.E.P.S base
• Theeffect of the sale in quantity of a batch results in the
partial or total liquidation of your U.E.P.S base and its replacement at cost
actual, but the unusually large effect on the
amount of a similar batch.

Monetary U.E.P.S

Due to the strong changes that can occur in the combination

of specific items from the general inventory under the LIFO method has been
had to incur adjustments in the valuation of inventories, therefore
reason, sees the need to apply the method. U.E.P.S monetary.

The objective of the method is to determine the change that occurred.

actually in the number of units available by group or segment of
inventory and appraise these units at the appropriate price. Like the inventory
original is the basis on which the changes are recorded the final inventory of
each period will be valued according to the prices of the base year and the
prices of the different extracts that compose it.

Advantages of the U.E.P.S monetary method

• The level of work is significantly reduced.
• The exclusion or inclusion of an article to a specific group of
inventory does not affect the base U.E.P.S of the total.
• Reduction of the margin of error in arithmetic calculations, as it
they are carried out on groups of articles and not for each one of them.
Information required to be able to develop the method:
• Selection of a base year
• Obtaining the price list of all the items that make up
the inventory at the beginning of the base year and the price list of the
items that make up the inventory at the end of each period in
study.
• Determination of inventory groups
• Determination of the price index of each group
.
Procedure for inventory calculation under the method
Monetary U.E.P.S.

The monetary U.E.P.S method aims to make an adjustment.

accounting of traditional U.E.P.S; this adjustment is basically due to the
changes in prices and variation of the products that the company sells
company; to have a clear understanding of how to perform the valuation calculation of the
Monetary U.E.P.S, it is important to define certain concepts that will be
frequent use.

Base year
The base year is the one that will be used to define the increases or
decreases in inventories from one period to another, this concept is of
sum importance, since it is the starting point to be able to carry out the
calculations for inventory valuation under the LIFO monetary method.

Final Inventory:
This inventory refers to the final inventory calculated over a period.
given, by the traditional U.E.P.S method

Inventory at Base Year Prices:

This type of inventory is obtained by multiplying the final inventory by
the price index; this calculation is of utmost importance for development
with the monetary U.E.P.S method, this result will lead to a
comparison between two periods and the final inventory will be obtained under the
U.E.P.S monetary method.

Price Index:
It is the result of comparing the final inventories of certain
periods based on the base year; the mathematical calculation is obtained
multiplying the quantity of units in inventory of the year to be evaluated, with
the prices of the same and the prices of the base year or the years following the year
base; thus, the results of both periods are obtained and the calculation is made of the
variation that occurred between both calculating thus the percentage variation
between both.
Stratum (Increase) or Decrease between periods:
Once the inventories at base year prices are obtained between two
periods, the nominal variation of them should be calculated, thus, by
For example, if the year to be evaluated had an inventory greater than the one with which it
this is comparing (base year, years following the base year) this will have
an increase in its inventory, and the stratum must be calculated by multiplying the
increase in average inventories by the price index of the year to
evaluate; it should be noted that the stratum only occurs if there is an increase between
inventories; that is, if the inventory of the year to be evaluated is greater than the inventory
from the base year or subsequent years after the base year.

Final inventory U.E.P.S monetary:

It is the result to be achieved, this is obtained by adding the
stratum obtained from the year to be evaluated with the inventory at base year prices
of the year with which it is compared. If instead of a layer, a
decrease in the inventory to be evaluated in the year, this is subtracted equally.
method to obtain the final inventory U.E.P.S monetary.

Accounting record
To comply with legal provisions and maintain control of
value of the inventory valued by the LIFO method monetary and
remembering that this method aims to make adjustments to the method
Traditional U.E.P.S, all accounting records that are carried out will be
adjustments to those already made when the valuations were carried out
inventories and recording of the cost of goods sold as well as the
income tax.

The inventory record evaluated by the LIFO monetary method

it must be carried out in the following manner:

A account must be assigned in which there are debtor balances and

creditors, in order to be able to make the accounting entry for the valuation
made using the U.E.P.S monetary method, this must affect all
the years to be evaluated, therefore, what is credited and debited in a period
The following periods must be reversed in order to record the current one.

In the case of income tax, the difference that is conceived

as tax deductible, it must be made as an adjustment for the amount
of which was not recorded, thereby affecting an expense for taxes
deferred by the amount that is detected. This is obtained by comparing the
inventories, the endings in books (traditional LIFO) with the LIFO method
monetary of the same period, this difference can be deducted from the
tax as long as the inventory valuation under the method
monetary amount is less than the value of the inventory on the books,
deducing it according to the tax rate applied.
FIRST IN FIRST OUT (FIFO) METHOD.

This method basically consists of giving inventory exit to

those products that were purchased first, so in the
The inventories will consist of those products purchased most recently.

In any of the methods, purchases do not have much

importance, since they enter the inventory at the value of
purchase and does not require any special procedure.

In the case of returns for purchases, this is done by the

value that was purchased at the time of the transaction, that is to say the exit one.
of the inventory for the amount paid in the purchase.

If what is returned is a product sold to a customer, this is

enter the inventory again for the value at which it was sold, since it
Assume that when the sale was made, those products were assigned a cost.
of exit according to the inventory valuation method handled by the
company.