Goods Receipt Note: What It Is and How It Impacts Inventory Records
Learn how goods receipt notes support accurate inventory management, document discrepancies, and ensure reliable record-keeping in supply chain operations.
Businesses managing physical products depend on accurate paperwork to track goods. The Goods Receipt Note (GRN) is a significant document in this system, confirming deliveries and helping maintain reliable inventory counts. Inconsistent handling of GRNs can lead to mismatches between orders, receipts, and records, potentially causing financial and operational problems.
Purpose
A Goods Receipt Note (GRN) serves as formal confirmation that a business has received goods from a supplier. It provides documented evidence of the delivery, acting as internal proof of receipt. This document is part of the procurement cycle, specifically within the receiving and warehouse logistics stage.
The GRN allows a business to compare the items received against the original purchase order. This check helps confirm that the quantities and types of goods match what was requested. It establishes a clear record that both the buyer and supplier can reference, which can be useful for resolving potential disagreements about the delivery later on.
This document also supports internal controls and financial procedures. The accounts payable department uses the GRN to verify supplier invoices before issuing payment, ensuring payments are made only for goods confirmed as received. This contributes to financial accuracy and reduces risks like payment errors. The GRN creates a documented link between the purchasing, receiving, and accounting departments, supporting audit trails.
When It Is Issued
A Goods Receipt Note is generated after the physical delivery of goods arrives at the company’s designated receiving area, like a warehouse or stockroom. Its issuance follows the act of receiving and checking the shipment against documents such as the supplier’s packing slip.
Typically, the GRN is created after an initial count and inspection of the delivered items. Receiving staff compare the physical goods to the delivery paperwork and the original purchase order to confirm quantities match. While a detailed quality check might occur later, the GRN is usually issued once staff are satisfied that the delivery quantity corresponds to the order, marking the point where the receiving company takes control of the goods.
Key Details to Include
For a Goods Receipt Note to be effective, it needs specific, standardized information for record-keeping and downstream processes like inventory updates and invoice matching. The document usually identifies the supplier by name and possibly a vendor number.
It must also detail the delivery specifics, including the date and time the goods arrived. Recording this information helps track delivery timeliness and establishes when the goods entered the company’s possession. Referencing the original purchase order (PO) number connects the received items back to the initial request, allowing verification against the order.
A central part of the GRN is a list of the products received. This includes:
Item descriptions (name, size, type, etc.)
The exact quantity of each item received.
This information is necessary for updating inventory records accurately and comparing against the PO and supplier invoice. Some GRNs might include space for notes on the condition of goods upon arrival.
Finally, the GRN requires authorization to validate the document and confirm the transfer. This usually involves the name and signature of the receiving employee who accepted the delivery. Sometimes, the delivery driver’s signature is also included. These signatures provide acknowledgment from those involved in the handover, adding accountability and solidifying the GRN as proof of receipt for reference or audits.
Documenting Returns or Discrepancies
While the goal is for deliveries to match purchase orders perfectly, discrepancies like incorrect quantities, wrong items, or damaged goods can occur. When issues arise, careful documentation is needed for accurate records and resolution with the supplier.
If receiving staff find shortages, overages, or damage, these must be formally recorded. This often involves noting the specific issue directly on the Goods Receipt Note for each affected item. Alternatively, a separate discrepancy or damage report referencing the GRN and PO number might be used.1Virginia Tech Procurement Department. Procedure for Handling Damaged Goods Receipt Including photos of damage and keeping original packaging can support claims. Noting issues immediately, ideally before the delivery driver leaves, and having the driver acknowledge the problem on the delivery receipt is advisable.
When goods are unacceptable due to damage or incorrect specifications, a return process might start directly from receiving. This involves formally rejecting items and arranging their return to the supplier. Often, procedures state that unacceptable goods shouldn’t be entered into the inventory system if returned immediately. Instead, specific documentation, like a “Return to Supplier” form referencing the GRN or PO, tracks the items being sent back and the reason.2University of Cambridge Finance Division. Procedure for Returns to Supplier This paperwork is needed for coordinating the return with the supplier and ensuring proper credit is issued, preventing payment for rejected goods. Prompt communication with the supplier, backed by the discrepancy or return documents, is essential for resolution through replacements, credit memos, or invoice adjustments.
Relationship to Inventory Records
The Goods Receipt Note directly feeds information into a company’s inventory records, linking the physical receipt of goods to the inventory management system. Once a GRN is issued, its details, especially item descriptions and quantities, are used to increase stock levels in the system. This is particularly relevant for businesses using perpetual inventory systems that track stock levels continuously. The GRN confirms the goods are physically present, triggering the update.
This inventory update has accounting implications. Processing the GRN data typically increases the Inventory asset account on the balance sheet. If the supplier’s invoice hasn’t been processed, a corresponding entry might be made to a temporary liability account (sometimes called “Goods Received Not Invoiced”) to record the receipt of the asset before the final payable liability is established.3Double Entry Bookkeeping. Goods Received Not Invoiced The quantities from the GRN are also used in inventory valuation methods like FIFO or Weighted-Average Cost.
Connecting the GRN directly to inventory records improves data accuracy. Precise inventory counts support effective stock management, helping avoid stockouts or overstocking. Reliable inventory figures are also necessary for accurate financial reporting, including calculating the Cost of Goods Sold (COGS) and valuing ending inventory. The GRN provides documented evidence for inventory additions, strengthening internal controls by ensuring records reflect verified physical receipts.
Record Storage
Managing Goods Receipt Notes involves more than their initial use; systematic storage is needed for operations and compliance. Retaining these documents creates a historical record useful for internal audits, resolving later supplier discrepancies, and verifying transactions during financial reviews.
How long GRNs should be kept often depends on regulations and internal policies. Tax authorities, like the Internal Revenue Service (IRS), require businesses to keep records supporting tax return entries. Since GRNs back up inventory figures impacting COGS and asset values, they fall under these requirements. The IRS generally suggests keeping records for 3 years after filing a return, potentially extending to 6 years for substantial income understatements. Records related to assets like inventory should often be kept longer, until limitations expire for the year the asset is disposed of. Consequently, many businesses retain supporting documents like GRNs for seven years or more.
Businesses can store GRNs physically or electronically. Physical storage requires space, organization (by date, supplier, etc.), and protection from damage. Retrieving specific documents can be slow. Electronic storage, using scanned copies or digital GRN systems, saves space and allows faster searching.
Electronic storage requires careful data management to ensure record integrity and authenticity. Secure access controls are needed to protect sensitive information, and regular backups are essential to prevent data loss. Whether physical, digital, or hybrid, the storage system must keep GRNs organized, secure, and accessible for the required retention period to meet operational and compliance needs.