Accounting - PERPECTUAL INVENTORY SYSTEM, Study notes of Accounting

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Physical stock verification

• (^) Having reconciled the balances of bin cards and store

ledger accounts,it is necessary to check these

balances with the actual items present in the bins in the

store room.For this following stock verification is

necessary.

• (^) Periodic stock verification.
• (^) Continuous stock verification.

RECORDING METHOD In the perpetual system, purchase of inventory is recorded by debiting the inventory account. To record sales, two entries are needed. The first entry is to record the sale in the usual manner

• debit Cash or Accounts Receivable and credit Sales Revenue for the sale price of the goods. The second entry is to debit Cost of Goods Sold and to Credit Inventory for cost. This entry serves to keep an up-to-date record of the cost of inventory on hand. The inventory account and the cost of goods gold account carry an up-to-date balance throughout the period.

4. It keep moral check on the staff of the store

department.

5. The recording of stocks in Bin cards as well as store

record card minimise the error in entering the receipts

and issues of stocks.

6. The prompt balancing of closing stock enables quick

prerperation of final accounts.

MEANING

Continuous stocktaking (continuous inventory;

continuous stock-checking; perpetual audit) A

system of stocktaking designed to ensure that all

the items of stock are physically counted and

reconciled with the accounting records shown on

the bin cards and the stock ledger within a

specified period.

EXAMPLE:- A stocktaking team may be working continuously so that all items of stock are checked four times a year, when adjustments are made to the accounting records to adjust them to the physical stock. Continuous stocktaking is useful for determining the availability of each item of stock and establishing when stock levels reach reorder levels.

DISADVANTAGES

1. It is time consuming activity.

2. manpower factor as it involves more frequent

stocktaking.

WORKING OF BIN SYSTEM

• (^) Two bins of items are created.
• (^) The first bin is stacked on top of, or in front of, the second bin .
• (^) A reorder card is placed on the bottom of each bin.
• (^) Material is drawn from the first (or most accessible) bin only.
• (^) When the first bin is empty, it is exchanged with the second bin.

• (^) The reorder card is used to replace items in the first bin.
• (^) Material is then drawn from the second bin while waiting for receipt of the material on order.
• (^) When the new material arrives, it is placed in the empty bin, and the reorder card is returned to its proper place in the bin.
• (^) The procedure is continued, with material being selected from one bin until it is depleted. The material is then replenished through use of the reordering card.

advantages

• (^) The two-bin system is easy to implement and maintain, and it is typically just as effective as any complex computer driven system used to reorder parts.
• (^) 100% Material Available, ready to use.
• (^) Operator focuses on Process.
• (^) Materials fed directly to point of use.
• (^) The two bin system are ease of record keeping and physical control.
• (^) They consider best for very low cost, bulk or low volume items.

disadvantages

• (^) The system requires procedural training and

discipline.

• (^) Bin quantities are rarely adjusted properly to keep

pace with changing demand patterns.