Inventory System continued

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Inventory System continued

Perpetual Inventory

Perpetual inventory is the recording as they occur of receipts, issues and the resulting balances of individual items of inventory in both quantity and value. These inventory records are updated using stores ledger cards and bin cards.

Stocktaking

The process of stocktaking involves checking the physical quantity of inventory held on a certain data with the balance on the stores ledger cards or bin cards.

Stocktaking can be carried out either on a periodic basis or continuous basis.

Periodic stocktaking

Periodic stocktaking involves checking the balance of every item in inventory at a set point in time, usually at the end of an accounting year.

Continuous stocktaking

This involves counting and valuing selected items of inventory on a rotating basis. Each item is checked at least once a year.

Control procedures to minimize discrepancies and losses

Inventories cost a considerable amount of money and therefore, control procedures must be in place.

Such control procedures would include:

  1. physical security procedures, regular stocktaking and recording of all issues to eliminate unnecessary losses from inventory;

  2. separation of ordering and purchasing activities to eliminate fictitious purchases;

  3. quotation for special order to reduce the probability of ordering goods at inflated prices.

Inventory losses arising from theft, pilferage or damage must be written off against profits as soon as they occur.

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