Perpetual Stock System

Stock Control: A process whereby we monitor the inflow and outflow of stock on hand.

Perpetual System: [Used in this accounting study course.] A continuous control system performed at the point

of sale, which enables user to know how much stock is on hand at all times. Advantages of this as distinct from using a manual system are:

-Slow and fast moving lines can be identified.

-Stock levels can be checked for efficient re-ordering.

-Stock losses/gains can be recorded.

Physical Stocktake: A manual count of stock on hand, performed periodically on balance day as compulsory by

law. Any discrepancy between this and the perpetual records must be accounted for appropriately by a stock gain or stock loss[1]. A stocktake ensures the reliability of reports.

Stock Cards: Form of subsidiary ledger used to record all movements/transactions in relation to a particular item of stock.

FIFO: (First-in-first-out) An assumption that stock is sold in the same order it was purchased. This assumptionis used as sometimes it is difficult to know the actual cost of stock sold, or it is too cost ineffective.

*[NB: Using the FIFO assumption also results in a higher profit for the period, as the lowest possible cost of goods sold is used. This means more tax for the ATO/government, and is hence supported by them]

Stock losses[2] caused by:

-Undersupply by suppliers.

-Oversupply to customers.

-Theft.

-Recording/stocktaking/clerical errors.

-Fraud.

Stock gains[3] caused by:

-Oversupply by suppliers.

-Undersupply to customers.

-Recording/stocktaking/clerical errors.

Reducing stock loss by:

-Security.

-Distinguishing stock (putting expensive items elsewhere).

-Labelling stock with security tags.

-Training staff to be more vigilant.

---

[1] The entry for this in the general journal is discussed later in Balance Day Adjustments.

[2] Stock losses reduce older stock under FIFO.

[3] Stock gains increase newer stock under FIFO.

---

Ashish Sharma completed his VCE in 2005 and achieved a perfect score of 50 in Accounting. These are his notes, which he has generously donated to the VCE help community.

---