VS PERIODIC INVENTORY SYSTEM
In order to calculate gross profit, it is necessary to record opening inventory,
closing stock and purchases.
closing stock and purchases.
There are two basic types of inventory systems which are used for the
recording of inventory
recording of inventory
1)Perpetual inventory system
2)Periodic inventory system(Period end system)
Perpetual inventory system definition:-
Under a perpetual inventory system, a single account is used to record
the movement of all inventory items.It is a system where inventory records
the movement of all inventory items.It is a system where inventory records
Are continuously upgraded after every transaction.
The two basic components which are recorded by such system
Is that it maintains the record of purchases at the moment
Purchase is made and secondly, it records all issues out
Of inventory.
All the transactions involving the receipt or issue of inventory
must be recorded, and at any time, the balance on
the inventory account should be the value of
inventory currently held.
Under a perpetual inventory system, all receipts of
items is recorded at cost and all issues of inventory to the cost of sales.
What is inventory or bin card?
Under the perpetual inventory system Inventory card or Bin card
is used for the purpose of recording the inventory items.
is used for the purpose of recording the inventory items.
The inventory or bin card is maintained for each item receipts and issued
during the year on a timely basis.
during the year on a timely basis.
FOLLOWING IS BRIEF EXAMPLE OF INVENTORY OR Bin card
What is an INVENTORY count?
An inventory count is a physical verification of the quantity of inventory
that a business has in its stock.
that a business has in its stock.
Inventory count is performed both in perpetual and
periodic inventory systems. In perpetual inventory system inventory
the count is performed in order to check the closing stock however under
periodic inventory system inventory count is performed to determine
the closing stock.
periodic inventory systems. In perpetual inventory system inventory
the count is performed in order to check the closing stock however under
periodic inventory system inventory count is performed to determine
the closing stock.
What causes the difference between physical inventory counted
and balance on the inventory account?
and balance on the inventory account?
There might be several reasons for such difference however few are
listed below:-
listed below:-
- Failure to record a receipt
- Failure to record an issue
- Damaged inventory not recorded
- wrong posting of inventory receipts
- Inventory was stolen
When to perform INVENTORY count?
The prescribed time to do INVENTORY count is the reporting date
however in some case this might not be possible due to shortage of staff
or any other unforeseen contingency
however in some case this might not be possible due to shortage of staff
or any other unforeseen contingency
POINT TO PONDER:-
If the inventory count is performed on another date other than the
reporting date then the balance must be adjusted for the transaction
between the two dates.
reporting date then the balance must be adjusted for the transaction
between the two dates.
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