In Grade 12 Accounting, the inventory systems notes cover topics such as inventory valuation, management control systems, and costing methods. Students will learn about the significance of inventory management, just-in-time inventory systems, and costing methods like the lower of cost or market rule.
These notes also delve into the classification, recording, and summarizing of business transactions related to inventory. Understanding these concepts is crucial for students pursuing further studies or careers in accounting, as they provide a solid foundation for analyzing and interpreting financial statements and internal control measures.
Periodic inventory system:
A periodic inventory system is an inventory system in which real time updating of inventory balances are not made. In fact, physical counting of inventory determines inventory position on completion of a specified period – usually once a quarter or once a year.
In a periodic inventory system, purchases of inventory are recorded in the purchases account in the books of the business. At the end of the specified period, when a physical count is done, the balance of purchases is moved to the inventory account. The cost of sales is subsequently determined by application of a mathematical formula:
Opening balance of inventory + Net Purchases – Closing balance of inventory = Cost of sales
Where: Net purchases= Purchases + Carriage on purchases – Returns – Other allowances
The periodic inventory system is preferred by smaller enterprises with lower small volumes where physical inventory counting is more feasible. The periodic inventory system is less reliable as it provides accurate information only at the time of physical count of inventory. Determination of cost of goods sold in between physical count periods is based on estimation which may lead to several errors. This system is also unable to determine inventory losses until actually identified in physical counting.
Perpetual inventory system:
A perpetual inventory system is a system that accounts for movement of inventory continuously and on a real time basis. In a perpetual inventory system, purchases and sales of inventory are recorded as and when they occur. This system involves the use of point-of-sale systems and enterprise resource planning (ERP) systems for inventory management.
In perpetual inventory system, the cost of goods sold can be accurately determined at any point of time as purchases and sale of inventory are recorded on a real-time basis. The actual inventory balance is also available in the system at all times. Learners are encouraged to utilize their Grade 11 class work and home work books as they have dealt at length with Inventory Systems.
Grade 12 Accounting Inventory Systems Notes pdf
Download Grade 12 Accounting Inventory Systems Notes on pdf format, with answerbook and worksheet and memo.