The main activity of a business is mainly the operations of the goods. The goods here are the goods acquired by the enterprise for resale to the customers.
Where they buy goods for the purpose of trading in the sense of resale for the purpose of making a profit. Therefore, the operations of the goods are in the purchases, and the associated returns and sales and the associated returns.
Commercial establishments usually have a stock of goods available for sale to customers, called inventory at the beginning of the accounting period First-time stock Beginning Inventory Also called inventory at the end of the accounting period Other stocks Ending Inventory.
In order to inventory, determine what is available and what has already been sold and determine the cost of the goods sold, there are two inventory inventory systems: the periodic inventory system and the continuous inventory system. The accounting treatment of the operations of the goods varies according to the system on which the entity relies on the stock inventory and the cost of the goods sold.
Periodic Inventory System Periodic Method:
A stock valuation system at the end of the accounting period and at the time of financial reporting, the aim of which is to inventory the quantity available in the stores and exhibitions of the institution. Any stock inventory is done manually once at the end of the period
The value of the inventory is determined periodically by performing a physical inventory and multiplying the number of units in the unit cost to estimate the value of the available stock. This amount is then recognized as a current asset. This balance remains unchanged until the next inventory is carried out,
In this system there is a purchase account and the purchase account is the debit party in the purchase record and there is no inventory account in the account tree
Inventory of the warehouse shall be carried out at the end of the accounting period and stock valuation shall be carried out according to the appropriate method
The cost of the goods sold is then calculated by the first-time goods plus the value of the purchases
- Ease of application
- Lower costs
- The quantity and cost of inventory can not be accurately determined on a daily basis
- It is not possible to identify inventory losses or constraint errors
The entity maintains detailed records that continuously indicate the quantity and cost of the inventory at any time during the accounting period. The cost of the goods sold is calculated after each exchange, supply, sale or purchase. This system may be considered to achieve better inventory control than the periodic inventory system. There is always daily information available on the amount and cost of the available inventory, which helps the entity to provide better service to customers without having to wait until the end of the period until the actual inventory.
A continuous inventory system requires the recording of all goods transactions in commodity inventory / inventory, thereby making commodity inventories / bills the purchase value and the transfer of purchases, making a creditor with the value of the proceeds or credits of the acquired purchase and discount and making a creditor at the cost of the goods sold If sales returns occur.
This method requires the use of accounting software or the holding of an assistant professor book with a separate record keeping for each stock item that includes a detailed statement of all movements in both quantity and cost. This secondary record is linked to the general inventory account, and matches are made to ensure the accuracy and completeness of the accounting records.
The existence of the cost of the goods sold permanently and immediately, allowing the extraction of the income list at any time without the need for inventory information
Difficulty working under cost
It is worth mentioning that the Orchida ERP accounts program works in two ways. Moreover, the accounting program automatically checks the cost of each transaction. This gives you the freedom to choose between the two methods and enjoy the features of each system. Periodic and continuous inventory explanation You can also view the rest of the properties Program Stores
What are the advantages and disadvantages of periodic inventory?
Ease of application
The quantity and cost of inventory cannot be accurately determined on a daily basis
It is not possible to identify inventory losses or listing errors
What are the advantages and disadvantages of continuous inventory?
The presence of the cost of goods sold permanently and immediately, allowing the extraction of income statement at any time without the need for inventory information
Difficulty working under cost
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