Perpetual Inventory System And Types of Physical Stocktaking

July 19th, 2006 Comments off
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PERPETUAL INVENTORY SYSTEM

A method of controlling physical stock level by ensuring the amount of stock level of every item could be accounted at all times. This normally involves detailed recording of all receipts, issues and running balances for each item of stock.

Due to the detailed recording of all in and out, management does not need to do a physical stocktaking/count. The stock level can be ascertained at any moment of time.

To ensure that the aforesaid stock level is accurate, physical stocktaking needs to be conducted.

Basically, there are two types of physical stocktaking:

CONTINUOUS STOCKTAKING

As the word continuous means the continual physical count of the quantity of the stock .

This is done at a FEW TIMES a year. The physical quantities counted are then compared to the stock recorded under the perpetual inventory system.

Stock discrepancies between physically counted and recorded might be due to:

  • Pilferage and falsification of documents;
  • Natural wastage like evaporation or breaking in bulk;
  • Warehouse’s errors both physical and clerical;
  • Clerical errors in the books recorded under the perpetual inventory system

PERIODIC STOCKTAKING

Unlike continuous stocktaking, the stocks are physically counted only at the end of the accounting year.

ADVANTAGES OF CONTINUOUS PHYSICAL STOCKTAKING COMPARED TO PERIODIC STOCKTAKING

Though the greatest disadvantage is the time and manpower factor as it involves more frequent stocktaking, there are many advantages of continuous over periodic stocktaking:

  • It improves the quality of the physical stocktaking as there are more frequent physical counting;
  • It allows stock discrepancies to be more fully investigated;
  • Maintain a higher work standards as the warehouse personnel know that they need to count the stock more frequently;
  • Unauthorized changes in procedures are detected and
  • Production hold-ups, a common issue in periodic stocktaking is eliminated.

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Financial Accounting

 
 

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