use of perpetual inventory system

8/8/2019 Use of Perpetual Inventory System

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Research Activity

Financial Accounting (MBA-528)



` Introduction to the topic

` Perpetual inventory system

` Method of controlling perpetual inventory system

` Use of perpetual inventory system` Case study

` Conclusion

Assignment#2 Financial Accounting(MBA-528) 2



` Manufacturing companies use three types of inventory:

` Material

`

Work in process` Finished goods

Merchandising means selling products to retailcustomers, merchandisers also called retailers.

Retailers have one inventory: merchandise.

inventory is something the company will re-sell tosomeone else.




` Inventory cost is an asset until it is sold

` After merchandise is sold, the cost becomes an

expense generally called Cost of Goods

Sold(COGS).` Retailers deal with an inventory: all the goods

(products) they have for sale. They account for

inventory purchases and sales in one of two ways:

Periodic and Perpetual.

Assignment#2 Financial Accounting(MBA-528)



` In Periodic system , inventory account balances

are updated once a year.

under this system, merchandise purchases are

recorded in the purchase account, and the

inventory account balance is updated only at the

end of each accounting period.

` In per petual inventory system, inventory

account balances are updated on continuous

basis




` Describe systems of inventory in which theinventory are recorded or displayed in the firm or organization's information system is updated on acontinuous basis with real inventory in stock.

` Under this system, purchases, purchase returnsand allowances, purchase discounts, sales andsales returns are immediately recognized in theinventory account, so the inventory account

balance should always remain accurate andupdated.




` Continuous stocktaking

In continuous stocktaking, the continual physical

count of the quantity of the stock. The physicalquantities counted are then compared to the stock

recorded under the perpetual inventory system.

` Periodic stocktaking

Unlike continuous stocktaking, the stocks arephysically counted only at the end of the

accounting year.




` Company requires to know the correct value of

merchandise sold, and that cost is used to

determine the Gross Profit.

` There are four methods of inventory valuation: Specific identification

First in first out (FIFO)

Last in first out (LIFO)

Average cost




` It is used to track each and every purchase and

sale of inventory.

` It can be used by installing a digital computerizedsystem

` The inventory records are continuously updated,

along with the inventory value.




` Getz Pharma Pakistan

Background:

The largest Pakistan's pharmaceutical company,

started in 1995.It is at the 6th position among 650 companies.

It is associated with Muller & Phipps, the largest

distribution company of Pakistan, with 1200

employees working at 23 locations in Pakistan,with coverage of 33,000 retail outlets.




` Getz pharma is using the perpetual inventory

system.

` The company is currently using the computerized

accounting system Integrated Oracle E-Businesssuite software for maintaining the daily records of

each transaction.




` Due to the requirement of time, company needs to

have quick access on its manufacturing

department stock position.

` It provides up to date information regarding stockor inventory level.

` Company needs current information to organize

their inventories of raw material with their

production schedule.` It provides the immediate information through

computerized accounting system.




` It provides ease to maintain the inventories on timelymanner. This can lead the company to grow its productivity.

` It also provides detailed information regarding themanufacturing units.

` If some discrepancies occurred due to breakages and

spoilage then it is easy to find out as well to recover theloss.

` For developing planned strategies for sale, it is required tohave complete knowledge about the inventory level in theproduction dept.

`

Perpetual inventory system presents a genuineprofessional means for recording of each item in operatingcircumstances.




` It is more commonly used because of scanner

devices.

` It provides continual information regarding what

was sold, where and when it was sold and at whatprice.

` This system tells us what should be on hand, it

knows when we started with, what we purchased,

and what we sold.` This system still requires a choice of valuation

methods.


use of perpetual inventory system

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