J Cansfield GRADE 12 INVENTORY SYSTEM NOTES Page 1 of 4
INVENTORY SYSTEMS
This is the way a business records their inventory (trading stock).
There are 2 systems:
1) Perpetual (Continuous system)
All transactions for inventory are recorded in a Trading Stock Account.
The cost of every sale and return is recorded in the Cost of Sales account.
2) Periodic System
All transactions for inventory are recorded in an account
specifically for that type of transaction (i.e. Opening Stock, Purchases, Carriage on Purchases, Creditors
Allowances and Closing Stock).
The cost of sales is NOT recorded.
RECAP of the PERIODIC INVENTORY SYSTEM
In the periodic inventory system, there is no continuous recording of the trading stock movements.
Cost of Sales is NOT recorded, and the only way to determine stock on hand is by doing a stock take (physical
stock count).
LEDGER ACCOUNTS FOR PERIODIC INVENTORY SYSTEM
Accounts for:
Opening Stock - opening balance of stock
Purchases - to record any stock purchased during the year.
- Donations and drawings of stock are deducted from the purchases account.
Carriage on purchases - carriage that is paid on any stock during the year.
Creditors Allowances - stock that id returned to the supplier during the year.
- closed off to Purchases at year end, to determine net purchases.
Closing Stock - closing balance of stock, on hand at year-end.
Trading Stock - only use on 1st day and last day of the financial year, to reflect stock on hand in
the balance sheet.
