A 15-ream paper shortage and an instruction to write it all off as water damage
You assist at the counter of a stationery and office-supplies shop in Cuttack and also carry out the month-end stock count. For A4 copier paper (500-sheet ream, MRP ₹310), the computer shows 58 reams on the last day of the month. Your physical count of the sales shelf and the storeroom together comes to 43 reams. While checking, you find the following: six reams were given to a neighbouring office last week on the owner's verbal instruction and no issue slip was made; two reams were opened and used for in-store printing of price tags; three reams in the storeroom are water-stained from a leaking pipe and cannot be sold. A delivery of ten reams four days ago was entered in the system and on the supplier invoice, and those reams are on the shelf and were counted. Two bills from the week show a quantity of 1 ream on the store copy while the customer's copy says 2. The owner wants the entire shortage written off as 'damage' before the accountant visits on Monday.
1. Reconcile the difference. How much of it can you explain, how much is traceable to billing, and how much remains unexplained? Show your working.
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Working
Book stock (system): 58 reams. Physical count: 43 reams. Difference: 15 reams short of the book figure.
A. Explained by known movements not recorded in the system
| Reason | Reams | Why it explains the gap |
|---|---|---|
| Issued to neighbouring office on verbal instruction, no slip | 6 | Stock left the shop; no issue entry was made |
| Opened for in-store price-tag printing | 2 | Consumed internally, never billed or issued |
| Water-stained, unsaleable | 3 | Still in stock physically but must be written off |
| Subtotal explained | 11 |
B. Traceable to billing errors Two bills were keyed as 1 ream while the customer's copy shows 2. That means 2 reams left the shop but only 2 were deducted in total instead of 4 - a further 2 reams of the gap. These are not 'damage'; they are keying errors and must be corrected by credit note or adjustment.
C. Residual 15 − 11 − 2 = 2 reams still unexplained.
Conclusion: 11 reams are genuine stock losses of three different kinds, 2 are billing errors, and 2 are unaccounted for until the two bills are verified against the customer copies and the CCTV for the shelf is checked. The ten-ream delivery is not part of the gap - it was posted and counted, so it cancels out.
2. The owner tells you to record all 15 reams as water damage. What do you do, and what are the consequences of following that instruction?
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I would not make the entry, and I would say why in one calm conversation with the owner before Monday.
Why the instruction is wrong, not just untidy:
- It is factually false. Only 3 reams were water-damaged. Recording 15 as damage misrepresents a physical fact in a statutory book.
- It hides two other problems. The 6 unslipped issues and the 2 in-store consumptions are control failures the owner needs to see; the 2 billing errors are recoverable money; the 2 unexplained reams may be theft. All four would disappear under a single 'damage' line, and the leak would never be fixed because it would look like the only cause.
- It misstates profit and tax. A damage write-off is an expense/loss entry. Booking consumption and issue as damage overstates the loss and understates the true cost of internal use, and distorts the gross margin the accountant is about to review.
- It creates audit risk. Write-offs without supporting evidence - no damaged-goods register, no photographs, no signatures - are exactly what an auditor or a GST officer queries. If the 3 damaged reams are being claimed as a loss, the evidence trail matters.
- It puts me personally in the wrong. My initials would be on a false entry.
What I propose instead: three separate entries - internal issue (6 reams, at cost, charged to the neighbouring-office account or to the owner's drawings), store consumption (2 reams, to printing/display expense), damaged stock (3 reams, written off with photographs and a damage certificate signed by the owner), plus a correction for the 2 billing errors and a note that 2 reams are under investigation. Same total, honest classification.
3. Name three controls you would put in place immediately so this does not happen again, and say which of the four problems each control addresses.
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1. A numbered issue slip for every internal movement, no exceptions - including the owner's verbal instructions. Addresses the 6-ream issue. The rule must apply to the owner too, otherwise it is not a control. The slip records date, item, quantity, recipient, purpose and signature, and is posted to the system the same day. A simple counter book with pre-printed serials is enough.
2. Same-day GRN and transaction posting, with a named backup for data entry. Addresses the wider pattern of stock leaving or entering without a matching system entry. The ten-ream delivery was posted only because someone was present to do it; if that person is on leave, deliveries currently sit on challan only. A named backup and a rule that no delivery is shelved before it is posted closes that hole.
3. A weekly cycle count of the top 20 fast-moving SKUs, with the counter and the storeroom counted separately and signed. Addresses the billing keying errors (they surface within a week instead of a month), the 2 unexplained reams (theft or mis-shelving shows up as a trend), and the general 'we only find out at month end' problem. Counting shelf and storeroom separately also catches stock that has been received but not put out.
Also, a physical fix rather than a control: move the paper stock off the floor onto pallets and away from the leaking pipe, and get the pipe repaired. Three reams of damage is a plumbing problem, not a discipline problem, and no register prevents it.