**OPERATING MATERIALS AND SUPPLIES HELD FOR REPAIR OR IN DEVELOPMENT**

**EFFECTIVE 2018**

**OPERATING MATERIALS AND SUPPLIES HELD FOR REPAIR OR IN DEVELOPMENT**

**EFFECTIVE FISCAL YEAR 2018**

**PREPARED BY:**

**GENERAL LEDGER AND ADVISORY BRANCH**

**FISCAL ACCOUNTING**

**BUREAU OF THE FISCAL SERVICE**

**U.S. DEPARTMENT OF THE TREASURY**

**Introduction**

The Department of Defense purchases reparable components, subsystems and assemblies, consumable repair parts, bulk items and material, subsistence, and expendable end items, including clothing and other personal gear to hold in stock.  The Department of Defense also purchases munitions ranging from tactical missiles and bombs to small caliber ammunition.  If items are purchased with working capital funds and held in stock for sale to end users, then the stock is reported as inventory on the financial statements of the pertinent working capital fund entity.  If items are purchased with procurement funds and held for issue without reimbursement to end users, then the stock is reported as operating materials and supplies (OM&S) on the financial statements of the pertinent general fund entity.

The material in stock is held for sale or issue, held for future sale or future issue, held for repair, or held as excess, obsolete or condemned pending transfer to disposal.  

Inventory AccountAccount TitleOM&S AccountAccount Title

152100 	                       Inventory Purchased for Resale	                      151100		     Operating Materials and Supplies Held for Use

152200	                       Inventory Held in Reserve for Future Sale           151200                      Operating Materials and Supplies Held in                    

                                                                                                                                                    Reserve for Future Use

152300                        Inventory Held for Repair                                     151400                     Operating Materials and Supplies Held for 

                                                                                                                                                    Repair

152400                        Inventory – Excess, Obsolete, and                        151300                     Operating Materials and Supplies - Excess, 

                                    Unserviceable                                                                                         Obsolete, and Unserviceable

152900                        Inventory – Allowance                                          151900                     Operating Materials and Supplies 

                                                                                                                                                   Allowance

                                                                                                                   151600                    Operating Materials and Supplies in

                                                                                                                                                   Development                                                                                       

The Department of Defense has OM&S items that are held for repair.  For instance, if the tail fin of a bomb is bent, the bomb is not thrown away.  Replacing the damaged tail fin repairs the bomb.  Similarly, spare parts for certain aircraft (e.g., the C-17) are stocked in the general fund and issued to replace broken parts. The broken parts are then repaired and returned to stock as serviceable assets.  

In addition, the Department of Defense enters into contracts with suppliers to build munitions that can take several years to develop and complete. During this time, the Department of Defense makes progress payments to their suppliers. Title to the portion completed in the progress billings passes to the Department of Defense at the time of payment. Therefore, these payments would be recorded in the new USSGL account 151600, “Operating Materials and Supplies in Development” until completion of the contract and all progress payments have been made.  

Sample transactions and further details follow.

Note that the illustrative transactions above use the allowance account.  Statement of Federal Financial Accounting Standard # 3, Accounting for Inventory and Related Property, permits the use of either the direct method or the allowance method with inventory held for repair.  The Department of Defense has opted for the allowance method.  To be consistent, the allowance method also will be used for OM&S.

***New USSGL Account (Approved June 2017)***

**Account Title:**Operating Materials and Supplies in Development****

**Account Number:**151600 

**Normal Balance:**Debit

**Definition:**The cost incurred or value of tangible personal property, such as operating materials and supplies in development that will be consumed in normal operations upon completion of development.  Upon completion, these costs will be transferred to USSGL account 151100, “Operating Materials and Supplies Held for Use,” or USSGL account 151200 “Operating Materials and Supplies Held in Reserve for Future Use.”  Only the Department of Defense may use this account.  This account does not close at yearend.****

****

**Justification:**Department of Defense procures various items as part of their Operating Material and Supplies that often require development by contractors/vendors. Such items result in progress payments made over a number of years while the items are developed. However, title is passed to DOD upon payment and not necessarily on delivery of the good. This USSGL account will provide a standard means for DOD to record this asset.

**Attribute Table**

**Impact on Crosswalks (FY 2018)**

**Listing of USSGL Accounts Used in This Scenario**

*For Account Definitions please refer to the USSGL TFM Section II.

**Scenario 1: Operating Materials and Supplies Held for Repair**

**Year 1**

**Illustrative Transactions**

Transactions for an exchange of a serviceable spare part for a reparable one so a broken end item can be fixed.

1-1 To record the issue of the serviceable item

1-2 To record the turn-in of the broken part and to revalue the part based on the estimated repair costs.

**Closing Entries**

**Reclassified Statements**

**Year 2**

Transactions to record the repair of the broken item and its return to stock as a serviceable asset.

2-1 To record the record enactment of appropriation, apportionment of authority by OMB, and the allotment of authority.

2-2 To record the obligation for repair contract

2-3 To record the repair of the broken part

2-4 To record the item’s return to stock as a serviceable item

**Closing Entries**

**Reclassified Statements**

**Scenario 2: Operating Materials and Supplies in Development**

**Year 1**

1-1 To record the enactment of appropriation, apportionment of authority by OMB, and the allotment of authority.

1-2 Department of Defense enters into a contract with supplier to build and deliver munitions.

1-3 Department of Defense records current-year undelivered orders from supplier without an advance.

1-4 Department of Defense receives progress billing from supplier.

1-5 Department of Defense makes progress payment to supplier for work performed through progress billing.

**Closing Entries**

**Reclassified Statements**

**Year 2**

2-1 Department of Defense receives another progress billing from supplier.

2-2 Department of Defense makes $8,000 payment to supplier to complete the contract.

2-3 The contract for munitions is complete and Operating Materials and Supplies in Development is moved to Operating Materials and Supplies Held for Use.[footnoteRef:1]  [1:  At any time during the development and production phase, if the supplier cannot fulfill their obligation on the remaining contract, the Department of Defense would be entitled to claim ownership of any and all munitions on which progress payments have been made since title passes to the Department of Defense at the time of progress payments.] 

**Closing Entry**

**Reclassified Statements**

Page 11 of 43

******June 2017**