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Chapter 12
Inventory
systems
LEARNERS SHOULD BE ABLE TO:
Define and explain the following stock systems:
• Perpetual stock system
• Periodic stock system
Explain the advantages and disadvantages of the perpetual and periodic
stock systems.
Record transactions using the periodic stock system in the journals, ledgers,
comparing it with perpetual stock system.
• Purchase stock as opposed to Trading stock account.
• Opening stock and Closing stock accounts.
• Trading account.
What is an inventory system?
Inventory (stock) system:
- An administrative system that
monitors and records the movement
of stock through the business, from
the time it is bought to the time it is
sold.
, Two main types of inventory systems
The perpetual stock system The periodic stock system
The balance of the Trading Stock account is The value of stock on hand will only be
continuously balanced to the physical value determined at the end of a period or at
in the store. regular intervals.
The Trading Stock account is debited with The Purchases account is debited with the
cost price when stock is bought. cost price when stock is bought.
The Trading Stock account is credited with When stock is sold, the cost price of the
cost price when stock is sold. stock cannot be determined, so no entry
will be made.
The cost price of the stock sold is calculated The cost price of stock sold is only
after every sale, using the predetermined calculated after a physical stock count is
mark-up percentage, and Cost of Sales done after closing stock is determined.
account is debited.
The additional cost incurred in purchasing The additional cost incurred in purchasing
stock, is debited to the Trading Stock stock is debited to the relevant expense
account. account.
When stock is returned by a customer, the The Trading Stock account is not updated
Cost of Sales account is credited, and the when stock is returned by a customer.
Trading Stock account is debited.
When stock is returned to a supplier, the When stock is returned to a supplier, the
Trading Stock is credited. value is credited to the Purchases account.
Therefore, the Trading Stock account will At the end of the period: Opening stock +
always reflect the value of stock on hand, Purchases – Closing stock = Cost of Sales.
because it is continuously updated.
The balance in the Trading Stock account The balance in the Trading Stock account
equals the physical value of stock in the will only reflect the opening stock value at
store. the beginning of the year and the closing
stock value at the end of the year.
Therefore, the balance in the Trading Stock
account is NOT equal to the physical value
during the financial year.
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