Measurement of stock

Under this system, stock-taking and valuation is done after a certain period, for example, monthly, quarterly, semi-annually or annually. Essentially this process determines the ending inventory by physical counting of the amount of goods in the store at a particular period.

This system suits businesses which sell many kinds of goods of relatively low costs per unit. For example, minimarkets, supermarkets and hardware stores.

Under this system stock-taking and valuation is done continuously, i.e., after every transaction. The business records all inventory movements (inflows and outflows) in the inventory ledger.

The system provides a continuous information regarding the costs of sales and remaining inventory on hand. This is done by having a subsidiary ledger for inventory where an account for each item of merchandize is kept. It is therefore, easy to determine the amount of goods consumed or sold by simply consulting the ledger. In a perpetual system the following journal entries will be made:

No.	Details	Dr.	Cr.
1	Stock Creditor (Being credit purchases of merchandise)	xx	xx
2	Debtors Sales (Being credit sales of merchandise)	xx	xx
3	Cost of sales Stock (Being cost of merchandise sold)	xx	xx

This system is suitable for business with fewer sales of relatively high value items. For example, motor vehicles, office equipment, household appliances and furniture.

Note:

It is not possible to use perpetual and periodic system at the same time. When the two systems are compared, the perpetual stock-taking system offers some extra advantage. That is, it provides a readily available up-to-date information about inventory movements and inventory levels, and if it is to be supplemented by stock counts, it provides information about incidence and scale of unexpected decrease in inventory.