Materials returned to vendors may be recorded on the invoice price or in accordance with the method adopted for pricing out material issues.

Recording of materials returned at invoice price is not realistic. This is because the price per unit that a vendor grants on the return of materials cannot be the same as the original invoice cost.

Adjustments for discount, freight, carriage inward, etc., must be made to arrive at the same time. Returns should be valued using the same method adopted for pricing out material issues, and then entered in the Issued Column in the stores ledger.

Pricing of Surplus Materials Returned to Store

Sometimes, the materials that a department requisitions may not be used in full. In such cases, the surplus needs to be returned to the stores.

The first option is to record the materials returned to stores at the price at which they were originally issued and to re-issue them at the same price on the next requisition.

The second option is to value the return of surplus at the original issue price and to treat it as an item of a new purchase in the Received Column of the stores ledger.

Treatment of Shortage of Materials

If any shortage of materials is noted on making a physical verification of stock of materials, it should be entered in the Issued Column of the stores ledger and valued in accordance with the method adopted for pricing out material issues.

Frequently Asked Questions

Why material returned to the supplier cannot be recorded at the same price as the original invoice cost?

The return of materials may have been brought forward or may have been delayed. So, the price per unit would not remain constant.

What is the best way to record returns of surplus materials in the store's ledger?

The first option is to record the return of surplus at the price at which they were originally issued and to re-issue them at the same price on the next requisition.

Why do we need to adjust for discount, freight, etc., when recording returns on the original issue price?

Returns should be valued using the same method adopted for pricing out material issues, and then entered in the issued column of the stores ledger.

What is the process to record shortfalls of materials?

The shortfall should be entered in issued column in the stores ledger and valued using the method adopted for pricing out material issues.

How should shortages of materials be valued?

Shortages should be valued at the price of purchase in the received column in the stores ledger. The issued column can then be debited to close it.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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