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Inventory Records

In: Business and Management

Submitted By aizel
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Inventory Records:

It's good business

Introduction

Jewelers Mutual Insurance Company developed Inventory Records: It's good business because proper inventory record keeping is a necessary tool for a jewelry business to be successful.

Taking the time to establish and maintain accurate and up-to-date inventory records will save you time and money in the event of an insurance claim. If you have a loss, your inventory records will prove what inventory has been lost and its value so that your claim can be settled quickly. If you can't prove that missing items existed, the payment for your loss may be delayed or possibly denied. In addition, inventory records are required by your insurance policy.

Recovering insured losses isn't the only reason to establish proper inventory records. Inventory records are useful in planning. They can indicate when to reorder merchandise, what's selling and what's not. Your records also can alert you to missing items and errors in entry, and they help deter internal theft.

This guide provides information for retailers, wholesalers and manufacturers, with a specific section focusing on the unique needs of wholesalers and manufacturers. Because each jewelry operation differs in size, method of operation, and type of finished products, it's difficult to recommend one inventory system that will work for every firm. Many of the recommendations listed in this guide apply to retailers, manufacturers and wholesalers; some do not.

Work with your accountant to create an inventory record keeping system that works for your business. Computer-based inventory systems are now affordable and easy to use. Jewelers Mutual has created a list of inventory software products for jewelry businesses; the list is available on our web site.

If you have any questions or comments, please contact your agent or Jewelers Mutual's Sales & Marketing Department.

Jewelers Mutual Insurance Company
Sales & Marketing
24 Jewelers Park Drive
Neenah, WI 54956
(800) 558-6411 communications@jminsure.com www.jewelersmutual.com

Inventory records checklist

This checklist will help you determine if your inventory records system follows the recommendations in this program. Consult your accountant for a thorough evaluation of your inventory records system.

|[pic] |My inventory system contains a detailed listing of all owned stock for sale, customers' goods, memorandum goods, and merchandise |
| |temporarily away from my store. |
|[pic] |I keep purchase invoices, sales receipts and an annual physical inventory list of all my stock. |
|[pic] |I maintain a perpetual inventory system or an equivalent system. |
|[pic] |I update my records regularly. |
|[pic] |I am exact and accurate in my record keeping. |
|[pic] |I perform a detailed and itemized listing of my physical inventory at least once a year. |
|[pic] |My accountant has reviewed my inventory system. |
|[pic] |I store a copy of my annual physical inventory records off-premises. |
|[pic] |If I use a computer-based perpetual inventory system, I back up my files on disk and store the disk at another site. |
|[pic] |If I use a manual perpetual inventory system, I keep my records separate from my merchandise. |
|[pic] |I store all of my records, including purchase invoices and sales receipts, in a fire-resistive container or safe that does not hold |
| |merchandise. |

Inventory record keeping requirements

To comply with the inventory record-keeping requirement of your Jewelers Block policy, you must do the following: 1. Take a detailed and itemized inventory once a year. Jewelers Mutual defines a detailed and itemized inventory as including, but not limited to: a. A listing, which describes merchandise in such a manner that will trace items to the original source documents (i.e., purchase invoices). b. The value* of each item at your cost. c. The date the inventory was taken. d. The exact total value of all inventory items; not a rounded or estimated value. 2. Maintain purchase invoices of all items. 3. Maintain a record of the cost of component parts for manufactured (assembled) items. 4. Maintain sales receipts, which identify items sold by inventory numbers, descriptions, or some other method that will trace the items to the listing of the physical inventory and the original source documents (i.e., purchase invoices).
Sample inventory record format

[pic]

With this information, you can maintain accurate inventory records. You can add other columns to your records if you feel it will help track merchandise. Additional columns could include manufacturing style number; manufacturer invoice number; type of metal (14k gold, platinum, silver, etc.); type and weight of stones; customer's name; selling price of item; and method of payment.

* Throughout this guide, value is defined as your actual cost.

Storing Inventory records

Keep your inventory records for a minimum of seven years. If you have stock that is older than seven years, keep the inventory records for that stock until the items have been sold.

If you have a manual inventory system, keep your records separate from your merchandise to minimize the chance of your records being stolen. If your inventory system is computer-based, back up your files on disk and store the disk at a location away from your business.

Store your inventory records, including purchase invoices and sales receipts, in a fire-resistive container or safe that does not hold merchandise.

Keep a copy of your annual physical inventory away from your business, such as at your home, a bank vault, or your accountant's office.

Developing a perpetual inventory system

A perpetual inventory system tracks every item for sale, from the time you receive the merchandise until you are no longer responsible for it. Some items - e.g., low-valued merchandise, raw materials and parts, chains sold by the gram - have different record keeping requirements, which are described later in this guide under "Merchandise requiring special records."

You can keep your system on computer, index cards or ledger notebook. Visit our web site for a listing of computer software products for the jewelry industry. (www.jewelersmutual.com; click on "Insure your jewelry business.") In conjunction with the perpetual inventory system, you should retain: 1. Purchase invoices. 2. Sales receipts. 3. Your annual detailed and itemized physical inventory.
To track your merchandise effectively, maintain your perpetual inventory on a daily basis. In addition to keeping records of your own merchandise, keep a detailed listing of: 1. Your customers' goods, if you are a retail jeweler. 2. Merchandise that belongs to others in the jewelry business. 3. Items that are temporarily away from your business.
Take a physical inventory at least once a year. If you update your records regularly, your perpetual inventory should match your physical inventory.

Unique inventory numbering
Develop an inventory identification system that assigns a unique inventory number to each piece of jewelry. Even though two items have identical make and price - for example, two watches - each should receive its own inventory number. One exception is computerized systems that inventory merchandise by stock keeping units (SKU). Similar items are given the same SKU number and tracked by quantity. This is an acceptable inventory method.

Inventory numbers should be assigned in sequence by number, letter, or letter/number combination. The letter/number system allows you to identify your inventory by categories. For example, a gold chain could be CH100; a wedding ring could be WR100.

Inventory codes for categories
You can assign a code to each category of merchandise. Codes also can be used to refer to specific suppliers. Develop codes that are easy for you and your employees to understand and remember. To be effective, you must use these codes consistently. The following are commonly used codes and their categories:

|BRC |Bracelets |DR |Rings with diamonds |
|CHR |Charms |SR |Rings (engagement) |
|CL |Clocks |R |Rings (gold) |
|G |Giftware |GR |Gent's rings |
|ER |Earrings |WR |Wedding rings |
|GT |Gent's jewelry |CS |Stones (loose colored) |
|F |Mountings and findings |D |Diamonds (loose diamonds) |
|CH |Gold chains |WG |Watches (gents) |
|PD |Pendants |WL |Watches (ladies) |
|CR |Rings with colored stones | | |

You may need other categories or subcategories. For instance, under Category D, Stones (loose diamonds), you may want to add a separate listing for diamonds by clarity.

|D.O |Flawless |D.5 |SI1 |
|D.1 |VVS1 |D.6 |SI2 |
|D.2 |VVS2 |D.7 |I1 |
|D.3 |VS1 |D.8 |I2 |
|D.4 |VS2 | | |

You could refine these subcategories further by including the color of the stones in each subcategory. Under D.4 (loose diamonds that are VS2), you could add the color categories:

|D.41 |D-E |
|D.42 |F |
|D.43 |G-H |
|D.44 |I-J |

Under each of these headings, you can list all diamonds of that color and clarity according to cut and carat weight.

Step-by-step process for creating a perpetual inventory system 1. When a new piece of merchandise arrives, compare the purchase invoice to the merchandise to make certain you received the correct item.

2. Assign a unique inventory number or number/letter combination, based on your inventory identification system and record the inventory number in the perpetual inventory system, along with the following: a. A description of the item. b. The date the item was received. c. Your cost for the item. d. The manufacturer's name.

3. Record the inventory number on the purchase invoice that you received with the merchandise and file the purchase invoice. 4. Record the inventory number on the sales tag for the item. Information on the sales tag will help track merchandise to the purchase invoice and perpetual inventory. In addition to the inventory number, you may want to include the following information on the sales tag: a. Unique inventory number. b. Cost code for items. c. Category code. d. Retail price. e. Carat weight, color, clarity of stones. f. Supplier code. [pic] 5. When an item of jewelry is sold, record the inventory number, date of sale, customer's name and address, and selling price on the sales receipt. (See sample on the next page.) It also may be helpful to record a brief description of the item on the sales receipt. Instead of writing the information on the sales receipt, some jewelers attach the sales tag to the receipt. The sales receipt should be a three-part form. Enter the date of the sale into the perpetual inventory system. Most jewelers also enter the sale price. • Part one goes to the customer; • Part two is filed for inventory purposes; and • Part three goes to your accountant or bookkeeper. [pic]

Customer-returned merchandise

If a customer returns an item, re-enter the item in your perpetual system in one of two ways. 1. Locate the returned item's inventory number in your perpetual inventory. In the Date of Sale column, mark the item returned and record the return date. Keep the original inventory number for the returned piece. 2. Create a new inventory number for the returned item, but note in your perpetual inventory that the item was returned and include the old inventory number.

Merchandise transferred between stores (retail)

When transferring items between stores, complete a transfer document, such as the one below; use a three-part form or make three copies. One copy remains with the sending location; one copy is sent with the jewelry to the receiving location; and the third copy is forwarded to the home office, accountant or bookkeeper.

[pic]

Record the transfer in each store's perpetual inventory system. Location 1 should record the transfer as a sale, as shown below. In the Date of Sale column, add a code that indicates transfer. For example, T2 indicates transfer to the second location.

Men's Jewelry (Category-GT)
[pic]

Since Location 2 is receiving the merchandise, Location 2 should treat the transfer as a purchase. In the following example, the transfer is recorded in the Manufacturer's Name column as T1, which indicates the item was transferred from Location 1.

Men's Jewelry (Category-GT)
[pic]

Merchandise temporarily away from your business

Maintain a complete and separate inventory for items that are temporarily away from your business, whether in your possession or in the hands of an authorized party. See the example below.

Gold Mine Jewelers
John Smith, Commissioned Salesperson
[pic]

Keep a copy of this inventory listing at your store or home office. A copy also should be given to the authorized person who will carry the merchandise. Any activity, such as sales or memorandums to potential clients, should be recorded on this separate inventory listing.

All merchandise that is not sold should be re-inventoried when returned to your business. In addition, sold items, memorandum goods, etc., should be reconciled to ensure your inventory is accurate.

Recording a change in values

If your replacement cost increases or decreases for certain items in your inventory, Jewelers Mutual permits you to amend their values on the next physical inventory that you conduct and provide to the insurance company as the basis for your premium.

If you follow these record keeping guidelines, and you maintain and update your system on a regular basis, you will meet the inventory record keeping requirement of your policy.

Merchandise requiring special inventory records

The following items require special documentation.

Pawned items

Record pawned items in the manner that meets the requirements of your local and state laws. For insurance purposes, maintain a record for pawned items. The record must include: 1. Name and address of the person who pawned the item. 2. Date the item was received. 3. Description of the item. 4. Dollar value of the loan, plus accrued interest.
Pawned items in default
After you take legal title to a pawned item, the item should be recorded and reported as owned inventory. The values assigned should be your estimated replacement cost value. Any item that is valued at more than $1,000 should be professionally appraised. Keep this appraisal with your inventory records.

Estate/consignment/memo merchandise

If you purchase estate merchandise or other jewelry from a private party (non-jeweler) for resale, you must be able to verify the existence and value of this property in the event of a claim.

To document the existence and value of the property, record the following information at the time of acquisition: 1. Name, address, telephone number, and driver's license of the seller. 2. A detailed and itemized list of all items sold to you. This list should include a description of each item, your cost for each item, the date purchased, and the name of the seller. You should obtain professional appraisals for any items with values of more than $1,000. 3. The cancelled check used to make the purchase. If cash is used to make the purchase, you should keep records that will identify the source of the cash and the exact amount of the purchase price. 4. In a barter situation, you should make and keep a specific listing that identifies all of the items and values involved in the complete transaction.
If you take in items on memo, obtain a description and value for each item from the seller, a copy of the memo agreement, and the seller's name, address, and phone number. When you accept items on consignment from a customer, the consignment agreement must show the value the customer will receive when the items have been sold. Also, maintain records of items that are sold or returned to the consignor or the person who gave you the items on memo.

We recommend that you check with your local authorities about any regulations concerning the purchase and resale of this type of property.

In the event of a loss, our policy specifies that we will pay policyholders the smallest of the amounts shown below: 1. Your original cost for the property, unless you have valued this property higher or lower on your last written physical inventory as reported on the application attached to your policy. 2. The cost to repair, replace, or rebuild the covered property with material of like kind and quality. 3. The limit of insurance.

Trade-ins

Trade-ins that are melted down or scrapped should be recorded at scrap value only. If any items or parts of items can be resold, enter the replacement cost value in your inventory. If the replacement value exceeds $1,000, have the item professionally appraised. In addition, record the name, address, and phone number of the person who traded in the item, as well as the value given for the trade.

Customer repairs

When a customer brings an item for repair, record information on a three-part, carbonless job form or envelope. On the form or envelope, record the following:
|customer's name |work to be completed |
|address |estimated cost for the repair |
|phone number |customer's signature |
|description of the item |date the item was received |
|customer's estimate of the item's value | |

Give one copy of the form to the customer, leave one copy with the merchandise, and place the third copy with your inventory records, which are stored separately from your merchandise. Jewelers Mutual also recommends that you keep a separate record in a ledger book or computer record.

When accepting an item, check it for damage. For example, missing prongs, chipped or cracked stones, cracks in shanks, missing stones, etc., should be noted on the job form. When describing the item, give only a general description. For example, use the term "white stone" instead of "diamond," or "yellow band" instead of "14k yellow gold band." This could prevent you from having to replace a cubic zirconium with a diamond, in case of a loss.

Note: If the customer assigns a value that you think is too high, there are two alternatives you may want to consider: 1. Tell the customer what you think the item is worth and ask the customer to assign that value to the item. 2. You may decide to decline the job if the customer insists on overvaluing the item. Overvaluing can be an indication that you are being set up for a loss or complaint.

Merchandise that is not invoiced at the time of receipt

You may receive items that are not invoiced by the supplier until you decide to keep them or they are sold. In these circumstances, it's important to retain packing slips from the supplier and any identification numbers from packages, such as air bills or shipper numbers. If a loss occurs, these records could be used to determine which non-invoiced items from the supplier were in your possession.

Custom-made jewelry

If you custom make jewelry, record the following in your perpetual inventory: 1. Cost of component parts. 2. Supplier of component parts. 3. Invoice number of component parts. 4. Value of your time to design and manufacture the item. 5. Date when the item was completed.

Low-value items

Items valued under $50, at your cost, do not require individual inventory numbers. You can enter this information by weight, parcel, or quantity.

|Charms |Gold-filled jewelry |
|Giftware |Diamonds |
|Fashion jewelry |Sterling silver |
|Watches |Tie tacs, tie bars, money clips |
|Watch parts | |
Gold chains bought and sold by the gram

Maintain a separate ledger for inventorying gold that is bought and sold by the gram. Keep a running total of gram weight for various types of gold, such as 14k or 18k gold. This system is similar to balancing a checkbook.
14-Karat Gold
[pic]

Loose diamonds and colored stones purchased in bulk

Half-carat and more: These stones should have individual inventory numbers. See page 7 in this guide for information about establishing category codes. Recording merchandise by individual inventory numbers is shown below.

Stones - Loose Diamonds (Category D.11)
[pic]
.22 to .49 carats: Stones of this size that are equal in color, cut, clarity and carat weight can be inventory by weight. If they are not equal in color, cut, clarity and carat weight, then each stone should be individually identified with an inventory number.

Under .22 carats: Stones that are less than .22 carats can be recorded by weight, even if they are not the exact same color, cut, clarity or carat weight.

Type of stone Round Brilliant Quality VS Size .15CT Inventory Number LD-DI0357
[pic]

[pic]
Record the lot of diamonds in your perpetual inventory as follows:
[pic]

Giftware, charms, fashion jewelry

Record the quantity of these items on your inventory. Although identification of each item is not required, maintain all documents for these items. The sales tag should include the category number of the item, its cost, and gram or carat weight if applicable.

Sale of items that do not have unique inventory numbers

When you sell gold, diamonds, giftware, charms or other items that do not have a unique inventory number, record the gram, carat weight, or quantity on sales receipt so it can be subtracted from the running inventory record. In addition, record the date of the sale, customer's name and address, a brief description, and selling price on the sales receipt.
[pic]

Recording an annual physical inventory

You now have the necessary tools to establish and maintain detailed, accurate records. If you do not have an acceptable perpetual inventory system, now is the best time to develop one. If you update your records regularly, your perpetual inventory should match your annual physical inventory.

Step One: Begin with all of your stock labeled, identified and priced. Your sales tags should include category numbers, which indicate the type of merchandise. Category numbers are helpful because it's convenient to record your annual physical inventory by category. Keep a separate record for each category.

Step Two: Gather all merchandise from each category into separate areas. This prevents the need to re-inventory categories if merchandise is missing.

Step Three: It's best to work in teams of two, with one person reading the tags and another person recording the information onto separate inventory records either on paper or in the computer.
The annual physical inventory should include the date the inventory was taken, the category number, and each item's inventory number, quantity and brief description, as shown below.
There is no need to provide complete descriptions of items listed in your annual physical inventory. The inventory number is sufficient to find the purchase invoice, which gives a complete description of that item.

|Category #: |CH |Inventory date: |12/31/YR |
|Employee: |Jeff Brown |Date: |12/31/YR |
|Checked by: |Sue Phillips |Date: |12/31/YR |

[pic]
Step Four: When a category has been inventoried, check it for accuracy. If the number of items and dollar values match, place the merchandise in the safe, vault or under your showcases. This prevents merchandise from being inadvertently recounted or mixed into other categories.

Step Five: After all items have been inventoried, complete a cover sheet, similar to the one below. Refer to page 7 for descriptions of category codes.

[pic]

Step Six: Store your annual physical inventory in a fire-resistive container or safe that does not hold merchandise. Keep a copy of the annual physical inventory in a safe place away from your business, such as at your home, accountant's or bookkeeper's office, or in a bank safe deposit box. You will need the exact total for your Jewelers Block insurance application or renewal.

Manufacturing and wholesale jewelers

Jewelry manufacturers and wholesalers differ in size, method of operation, and type of finished products. It's difficult to recommend one inventory system that will work for every firm. Many of the recommendations listed earlier in this guide apply to manufacturers and wholesalers; some do not.

We offer the following as specific recommendations for manufacturers and wholesalers. We strongly recommend that you consult with a professional accountant when establishing or reviewing your inventory record keeping procedures. 1. Take a detailed and itemized inventory once a year. Jewelers Mutual defines a detailed and itemized inventory as including, but not limited to: a. A listing, which describes raw materials and parts, samples, finished goods, and merchandise in such a manner that will trace items to the original source documents (i.e., purchase invoices). b. The value of raw materials and parts, samples, finished goods, and merchandise. c. The date the inventory was taken. d. The exact total value of all inventory items; not a rounded or estimated value. 2. Maintain purchase invoices of raw materials and merchandise. 3. Maintain sales receipts, which identify items sold by inventory numbers, descriptions, or some other method that will trace the items to the listing of the physical inventory and the original source documents (i.e., purchase invoices).
Depending upon your business, you should also keep a detailed list of merchandise that • belongs to others in the jewelry industry, and • merchandise that is temporarily away from your business, whether in your possession or in the hands of an authorized party.
Assign inventory numbers to your merchandise. Inventory numbers can be established as described in the earlier section, beginning on page 7. You can create inventory numbers of categories, such as type of merchandise (gold, loose diamonds, etc.) or supplier. Use a method that works best for your business.

Assign inventory numbers in sequence by number, letter, and or letter/number combination. Be sure to develop consistent codes that are easy for you and your employees to understand and remember.

Raw materials and parts

Raw materials and parts include precious metals, plate, tubing, shot, findings, unset mountings, and similar materials used to manufacture jewelry. It's easiest to inventory this type of property by weight. As material is used, subtract the weight from the inventory. When new material is purchased, add the weight. Additions, subtractions and balances should be recorded daily, as shown below.
Type of metal Gold Inventory number G-MR100
[pic]

Loose diamonds and colored stones purchased in bulk

Half-carat and more: Each stone should have individual inventory number. See page 7 in this guide for information about establishing category codes. Recording merchandise by individual inventory numbers is shown below.

[pic]
Stones - Loose Diamonds (Category D.11)
.22 to .49 carats: Stones of this size that are equal in color, cut, clarity and carat weight can be inventoried by weight, as shown below. If they are not equal in color, cut, clarity and carat weight, each stone should receive an individual inventory number.

Type of stone Round Brilliant Quality VS Size .25CT Inventory number LD-DI357
[pic]
Under .22 carats: Stones that are less than .22 carats can be recorded by weight, even if they are not the exact same color, cut, clarity or carat weight.

Type of stone Round Brilliant Quality VS-IS Size .15CT Inventory Number LD-DI357
[pic]

[pic]
Record the lot of diamonds in your perpetual inventory as follows:
[pic]

Finished goods

Record all jewelry items that have been completely manufactured in the finished goods category. Assign an inventory number to each item. The following examples can be used to track custom-made items or similar items that are mass-produced. Your inventory records should include each item's value, which includes cost of component parts and labor.
[pic]
When you manufacture a large quantity of an item and the cost of parts and labor have been recorded, keep a running inventory, as shown below, to track your merchandise.

Inventory number ER456
[pic]
When items are sold, record the inventory number on an appropriate sales form, such as the one on page 9 of this guide, and delete the items from your inventory.

Inventory number ER456
[pic]

Merchandise temporarily away from your premises

Maintain a complete and separate inventory for items that are temporarily away from your premises, whether in your possession or in the hands of an authorized party, such as a commissioned salesperson.

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