INVENTORY ACCOUNT SYSTEMon
ABS Softech Pvt. Ltd.
GROUP NO. 6
MEANING
• Inventory can be identified as tangible property held for sale in the ordinary course of business,
• Or in the process of production for such sale,• Or for the consumption in the production of
goods,• or services for sale
• Types of company:– Merchandising– Manufacturing– Service
TYPES OF INVENTORY
Types of Inventory
Manufacturing concerns
Raw Materials
Work-in-progress
Finished goods
Trading concerns
Finished Goods
Service Concerns
Tangible Assets
Basis of Inventory Valuation
Cost Net Realizable value
Whichever is less
Value of Inventory
INVENTORY ACCOUNT SYSTEM
• There are two principal systems of determining the physical quantities and monetary value of inventories sold and in hand– Periodic Inventory System– Perpetual Inventory System
PERIODIC INVENTORY SYSTEM
• It is a method of ascertaining inventory• By taking an actual physical count of all the
inventory items on hand at a particular date on which inventory is required
• It is simple and less expensive than the perpetual system
• Stock amount is adjusted at the end of the accounting period to determine cost of goods
PERPETUAL INVENTORY SYSTEM
• It is a system of recording inventory balances after each receipt and issue
• Physical stock should be checked and compared with recorded balances
• CoG issued is directly and SoG is taken as residual figure with the help of stock ledger
• Maintenance of stock ledger to have record of goods on continuous basis
Distinction between PI and PIS• Based on physical verification• Provides information about
stock and CoS• Determine inventory and
takes CoGS as residual figure• CoGS-loss of goods as goods
not in stock are assumed to be sold
• Inventory control is not possible
• Simple and less exp.• Requires closure of business
for count stock
• Based on book records• Provides continuous
information about stock and CoS
• Determine CoS and compute stock as balancing figure
• CS- loss of goods as all unsold goods are assumed to be in inventory
• Inventory control can be exercised
• Costlier method• Determined without
affecting the operation
INVENTORY METHODInventory Method
Not- Ordinary interchange
Historical Method
FIFO
LIFO
Weighted average price
Average Price
Base Stock
Not- Historical Method
Standard
Cost
Adjusted SP LPP
Ordinary interchange
Specific identification method