Question

Answer the following question:

a) Explain in details any four differences between perpetual and periodic inventory method.

b) What are the challenges faced by store manager in doing physical inventory count?

c) What are the problems faced in determining the ownership of inventory? How would solve such problem?

b) How petty cash expenses are different from other expenses?

Answer 1

Ans a) (I) As the name suggest perpetual inventory system is that system which involves recording of each and every single movment of stock

(I) on the other hand periodic inventory system is that system in which records of inventory records are updated upon a specified time interval

(ii) Perpetual system is based on book records means information as per record books

(ii) Periodic system is based upon physical verification of stock

(iii) In perpetual system records are updated continuously wihout any break

(iii) In periodic system it is done at the end of accounting year

iv) Balance remains in perpetual system treated as balance of inventory

(iv) Balance remains in periodic system treated as cost of goods sold

Ans - b) Doing a physical inventory count is always a challenging task , and there may be lots of challanges while doing this count like .

I) This process is very time consuming

ii) There may be easily manipulation in this system

iii) Some time calculations become very tricky to give accurate result

Ans - c) Determination of ownership of inventory is not an easy task always , some time it becomes problematic to identify the value and amount of inventory , ownership becomes challenging part in following cases

I) When the goods is in transit

ii) In consignment sales

iii) In case of goods financing

iv) Sales made with a right to return

It depends upon situation to situation to detrmine right ownership .

Ans - d) Petty cash expense is not itself an expense , it is combination of various small expenses which incurred in day to day routine life , for example paper , ink, stationary , printing in order to minimise entries , some small expenses are written togther as petty cash expenses .