Periodic or Annual Inventory Control System
Under this system, stock taking is undertaken at the end of the accounting year. As the stock taking involves verify the physical quantities of stores in hand, some firms temporarily suspend plant operations when this is done.
This is because it is rarely feasible to take stocks when production is going on. Thus, the annual stock-taking should be organized well in advance to minimize production holds up.
The following points are to be considered while conducting periodic stock verification –
1. A person should be appointed to control the whole operation.
2. While stock verification is going on store, room should not be opened for issues and receipts.
3. All damaged, deteriorated or used items must be recorded separately.
4. The stock-taking must be under the control of one individual, consecutively numbered as issued to staff on duty as required.
5. Materials received should be listed separately but still under inspection.
6. Make each person responsible for a particular section.
7. Show the method stock sheet for each item of check i.e. count, weight. measurement on the
8. The method of pricing should be known and if possible, it is desirable to enter all prices in terms of units of issue on the stock sheets in advance.
9. In case of decentralized store systems. the materials in transit at the date of stock-taking must be taken into account.
Following are the main limitations of this system:
1. It takes more time to verify the stock.
2. Under this system the factory has to be closed during the period of stock verification which results in the loss of production time.
3. Sometimes a complete check on materials may not be exercised often those materials which are not used go unnoticed.
Difference between Periodic and Perpetual Inventory System
Periodic Inventory System
|Perpetual Inventory System|
|Stock verification is spread all over the year.||
Stock verification is spread all over the year.
It is performed by technical staff.
|It is performed by staff of accounts on the audit department.|
|Discrepancies are adjusted in one consolidated figure.||Discrepancies are adjusted all over the year.|
|There is no secrecy about the items of materials to be verified.||Secrecy can be maintained as to the items and dates on which they are verified.|
|Secrecy can be maintained as to the items and dates on which they are verified.||It is carried out without affecting the stores and production department.|
|Discrepancies are brought to the notice of management at the end of the year and hence it becomes too late to take.||Discrepancies are brought to the notice of management as and when it is detected and hence immediate action can be taken.|
|It is suitable only for small concerns as it will be very expensive to have this system of inventory control.||It is suitable for big concerns which can easily afford to incur expenses on this system.|
- Meaning of Cost Accounting | Nature and Scope of Cost Accounting
- Cost Accounting | Purpose or Functions of Cost Accounting
- Advantages and Disadvantages of Cost Accounting
- Difference between Cost Accounting and Management Accounting
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
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