Records pertaining to quantity and value of inventory-in-hand can be maintained according
to any of the following two systems:
(I) Periodic Inventory system.
(ii) Perpetual Inventory system.
Periodic Inventory System
In case of this system the quantity and value of inventory is found out only at the end of the accounting period after having a physical verification of the units in hand. The system does not provide the infomiation regarding the quantity and value of materials in hand on a continuous basis. The cost of materials used is obtained by adding the total value of inventory purchased during the period to the value of inventory in hand iii the beginning of the period and subtracting the value of inventory at the end of the period. For example, if the inventory in the beginning was 1,000 units of Rs 10,000, purchases during the period were of 5,(XX) units of Ps 50,000 and the closing inventory 1,500 units of Rs 15,000, the cost of materials used will be taken as Its 45,000 (i.e., Rs 10,000 + Rs 50,000— P.s 15,000). It is, thus, assumed that materials not in stock have been used. No accounting is done for shrinkage, losses, theft and wastage.
Perpetual Inventory System
It is also known an Automatic Inventory System.
According to the Chartered Institute of Management Accountants London, it is “a system of records maintained by the controlling department, which reflects the physical movement of stocks and their current balance.” The definition given by Wheldon is more exhaustive and explanatory. According to him, it is “a method of recording inventory balances after every receipt and issue, to facilitate regular checking and to obviate closing down for stocktaking”.’ In case of this system the stores ledger gives balance of raw materials, work-in-progress ledger gives the balance of work-in-progress and finished goods ledger gives the balance of finished goods in hand on a continuing basis. The basic objective of this system is to make available detailsabout the quantity and value of stock of each item at all times. The system, thus, provides a rigid control over stock of materials as physical stock can regularly be verified with the stock records kept in the stores and the cost office.