Determine Shrink Reserve - A005 (A005)

 

When To Do This

The Shrink Reserve should be updated at least monthly but may be updated more frequently depending on ESS/Brand requirements.

Business Process Overview

The Shrink Reserve is updated in order to correctly state the enterprise's true inventory level as well as match the expense of shrink with the month in which it is estimated to have occurred.  Shrink reserves are normally calculated based on sales however; ESS/Brands/Center policy may dictate additional reserves determined using receipts, production, or another non-sales metric.  The values for the metric (total sale, total receipts, total production, etc.) will be obtained from EDW.

 

Input - Required Fields

Field Value/Comments

This will vary depending on the ESS policy but will include sales

Example:  $1,000,000.00

Budgeted/projected rate to accrue

Example:  .25%

 

Output - Results

Next Steps

The information (values) needed to post a journal entry in SAP

Post a journal entry in SAP.

 

Key Notes

·         The method for the calculation should be consistent each month (and across brands) and the rates used should be constant as well.

Procedure

1.       Please refer to the "Internal Controls Procedures" for manual procedures that are critical to ensuring an effective control environment for this activity.

2.       Query EDW for the cost of sales for the applicable company code and time period.

    EFS/Brand/LP/Center policy may require additional reserves based on production, units shipped, units received, etc.  All can be obtained via EDW query.

3.       Multiply the cost of sales obtained in Step 1 against the projected shrink rate.

    The projected shrink rate will typically equate to the budgeted shrink rate but may differ if the Brand or EFS believes the budgeted shrink rate to be inappropriate. 

4.       The net result is the amount that will be used in the week or month-end journal entry.

    The GL account to be debited is 500400 Shrink and the account to be credited is 151100 Shrink.  Use the appropriate profit center as needed.

5.       Use transaction code FB01 to create a manual journal entry.

6.       This activity is now complete.

Result

You have updated the reserve account per policy.

Comments

None