inventory account system

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