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kowsalya.s commented
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**DIFFERENCE BETWEEN PERIODIC STOCK TAKING AND CONTINUOUS STOCK TAKING**
Hi,
PERIODIC STOCK TAKING ---Stock verification takes place at the end of a financial period ,say a year.
CONTINUOUS STOCK TAKING ---Stocks are verified at regular intervals during the year
PERIODIC STOCK TAKING ---all items of stocks are covered in a single stretch of verification,say over two or three days.
CONTINUOUS STOCK TAKING--In each verification two or three items are covered on random basis.In the entire period all items are covered on rotational basis.
PERIODIC STOCK TAKING -- discrepancies can be known only at the end of the period.
CONTINUOUS STOCK TAKING--Discrepancies are ascertained in order to take corrective recurrence.
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Hii Uma
Inventory systems
The principal systems for determination of physical quantities and the valuation of inventory
Types:
----- 1.Periodic inventory system
----- 2.Perpetual inventory system
Periodic inventory system
Quantity and value of inventory determined only at the end of the accounting period after taking a physical count of the inventory.
Also known as โAnnual Stock Takingโ. Cost of goods sold (COGS) is a residual figure and is obtained as follows:
COGS =Opening stock + total purchases - closing stock
Quantity and value of inventory not known on a continuous basis No accounting is done for shrinkage, losses, theft, and wastage Assumes materials not in stock have been used.
Perpetual Inventory System
Records the balance of inventory after every receipt and issue to facilitate regular checking and to avoid closing down the firm for stock-taking.
Also known as continuous inventory system. There is continuous physical stock-taking throughout the year and physical stocks are verified and compared with the balances recorded in stock registers (bin cards and stores ledger).
The closing inventory is calculated as a residual figure, ascertained as follows:
Closing Stock = Opening Stock + Purchases โ Cost of goods sold
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hi
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;
Warehouseโs errors both physical and clerical;
Clerical errors in the books recorded under the perpetual inventory system
Unlike continuous stocktaking, the stocks are physically counted only at the end of the accounting year.
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.
Hiiii friend......
**Difference between periodic stock taking and continuous stock taking**
Continuous stock taking is also known as perpetual stock taking.
The periodic system relies upon an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold, while the perpetual system keeps continual track of inventory balances. There are a number of other differences between the two systems, which are as follows:
- **Accounts**. Under the perpetual system, there are continual updates to either the general ledger or inventory journal as inventory-related transactions occur. Conversely, under a periodic inventory system, there is no cost of goods sold account entry at all in an accounting period until such time as there is a physical count, which is then used to derive the cost of goods sold.
- **Computer systems**. It is impossible to manually maintain the records for a perpetual inventory system, since there may be thousands of transactions at the unit level in every accounting period. Conversely, the simplicity of a periodic inventory system allows for the use of manual record keeping for very small inventories.
- **Cost of goods sold**. Under the perpetual system, there are continual updates to the cost of goods sold account as each sale is made. Conversely, under the periodic inventory system, the cost of goods sold is calculated in a lump sum at the end of the reporting period, by adding total purchases to the beginning inventory and subtracting ending inventory.
- **Cycle counting**. It is impossible to use cycle counting under a periodic inventory system, since there is no way to obtain accurate inventory counts in real time (which are used as a baseline for cycle counts).
- **Purchases**. Under the perpetual system, inventory purchases are recorded in either the raw materials inventory account or merchandise account (depending on the nature of the purchase), while there is also a unit-count entry into the individual record that is kept for each inventory item. Conversely, under a periodic inventory system, all purchases are recorded into a purchases asset account, and there are no individual inventory records to which any unit-count information could be added.
- **Transaction investigations**. It is nearly impossible to track through the accounting records under a periodic inventory system to determine why an inventory-related error of any kind occurred, since the information is aggregated at a very high level. Conversely, such investigations are much easier in a perpetual inventory system, where all transactions are available in detail at the individual unit level.
Regards,
Hii Uma
Perpetual Inventory System:
It is a method where the inventory accounting is kept continuously up-to-date and involves the continual recording of additions to and issues or sales of materials on a daily bases. This method is applicable to those businesses where the sale items are high vale and have a number of sale transactions on daily basis.
Periodic Inventory system:
Under this system, a physical inventory count is usually taken at the year-end or at regular intervals. The inventory on hand and cost of goods sold are determined by means physical takings OR are determined physically at the periodic intervals such as quarterly or semi annually, or at the end of period.
regards,