Write Off Inventory
Inventory is stock of raw materials, work in process, and finished goods being
held at a given time. Inventory is generally the least-liquid item listed by the
Postal Service in the current asset account of its balance sheet. Despite
investment recovery, many items remain in excess after completion of
contract performance because of the nonliquid nature of inventory. Any
warehouse operation, regardless of how efficiently it is managed,
accumulates excess inventory, usually from errors regarding demand
forecasts or record keeping. When excess inventory cannot be used for
alternative purposes, it becomes obsolete.
The inventory control plan (which contains data on the quantities, locations,
and conditions of inventory that is due in, on hand, and due out) is used to
avoid both the overstocking and the obsolescence of inventory. Obsolete
inventory does not create any value for the Postal Service because this type
of inventory cannot generate revenue or create cost savings. The residual
material, if not usable elsewhere in the Postal Service, is then considered
obsolete and will go through the normal disposal process.
Disposal is the final phase of the life cycle and can pose significant economic
and social risk to the Postal Service. The actual removal and relocation of
excess inventory not addressed by investment recovery is explained in the
Dispose topic of the Investment Recovery task of Process Step 6: End of
Life. The Postal Service must then write off these items from the current
asset account on its balance sheet.
Write offs occur when an item has a remaining capitalized value on the Postal
Service's accounting books. This is the capitalized central inventory for
stocked consumables and spares, as well as the undepreciated values in the
property accountability systems for equipment. Write offs for inventory items
are taken against a specialized account managed by Materials Production
and Distribution. Write off of the undepreciated value of equipment is paid for
by the owning organization against its operating or program budget. The
value in both cases is determined by the book value less any returns that can
be gained through any salvage value.
The Client and Item Manager must inform the Purchase/SCM Team of
inventory items that are written off so that future investment recovery plans,
inventory control plans, and demand forecasts can be updated appropriately.