Question

Mr. Ahmad, the owner of Bundle Sdn Bhd, has adopted the perpetual inventory system instead of periodic inventory system to ensure the company’s control over the inventory. In addition, he plans to perform a physical stock count every quarter until he is confidence with the reliability of the perpetual inventory system.

Required:

a. Explain the difference between perpetual inventory system and periodic inventory system.

b. If perpetual inventory system is able to enhance the control over the inventory, why does Mr Ahmad need to carry out stock count.

c. Suppose that Bundle Sdn Bhd has an unadjusted balance of $10,600 in the Merchandise Inventory account. Bundle Sdn Bhd determines that the actual merchandise inventory physically counted at year-end is $10,000. How would be the adjusting entry to account for the difference between the inventory balance as per stock count and the inventory account.

Answer 1

ans 1

In perpetual inventory system the inventory is recorded whenever there is movement of inventory i.e when the inventory is sold that inventory decreases and when inventory is purchased inventory balance increases. Thd records are updated continuously. Whenever there is sales there are two entries recorded one for sale and other to record cost of sales. It is easy to control inventory than in periodic inventory system

Whereas in periodic inventory system the inventory is updated at peroidic intervals only. The cost of good sold is recorded only at periodic intervals. The physical verification is done and based on it cost of good sold is recorded. It is difficult to control inventory

ans 2

He needs to carry inventory count;

1) To verify that the actual physical inventory present in warehouse matched with the the inventory balance in the records avaiable in books

2) If there is any loss of inventory due to mishandling or other reasons that difference can be known with physical count of inventory

3) If in case any error has been made while recording the entries in the books that can also be known by comparing books record with physical count.

		in $
ans 3	Dr	Cr
Cost of Good Sold	$10000
Invntory (10600-600)		10000

Being adjusting entry to made