Thursday, December 30, 2010

#99- Inventory System - Perpetual vs Periodic

Entity can account for its inventory by using either perpetual method or periodic method.

Under perpetual method:
- the entity record for every single movement of the inventory (i.e. in and out of the inventory)
- at any single point of time, the entity is able to recall the inventory on hand
- frequency of stock-take required is lesser than those accounted using periodic method

Under periodic method,
- every single movement for the inventory (i.e. in and out) is not required to be tracked
- the entity perform a periodic stock-take to ascertain the inventory balance
- inventory on hand can only be recalled after the stock-take is performed
- frequency of stock-take required is higher than those accounted using perpetual method
- cost of sales is computed by using the following formula: Opening Stock+ Cost of Goods Manufactured / Purchase - Closing stock

The above summarize the difference between perpetual inventory method and periodic inventory method.


SAS 70 Audit said...

I think it's important to reiterate the necessity to have strong internal controls for these types of audits. By being able to trust your auditor, you will have much better results.

chandra said...

You were spot on with the difference in perpetual method or periodic method. Short and simple but very informative! keep it up!!

Accounting Resume

Anonymous said...

I’ve meant to post about something like this on my webpage and you gave me an idea. Cheers..

Md. Aminul Islam said...

Internal control is most important for an organization. If an organization well controlled then it must achieve its goal.