## Two Inventory Systems
### Periodic Inventory System
Stock quantity and value are determined by an actual physical count at the end of the accounting period.
- Cost of materials issued is a residual:
> Issued = Opening Stock + Purchases − Closing Stock (physically counted)
- Closing work for stock-taking is required.
- Simple and less expensive.
### Perpetual Inventory System
Material balances are recorded after every receipt and issue (typically computer-supported).
- Closing stock is a residual:
> Closing Stock = Opening Stock + Purchases − Cost of Materials Issued (directly calculated)
- Closing work for stock-taking is not required.
- More expensive but provides real-time visibility.
### Head-to-Head Comparison
| Feature | Periodic | Perpetual |
|---|---|---|
| Basis of stock figure | Physical count | Book records |
| Closure of operations for stock-take | Required | Not required |
| Cost | Cheaper | More expensive |
| Continuous stock-taking | Not facilitated | Facilitated |
| Cost of issues | Residual figure | Directly calculated (FIFO/LIFO) |
| Closing stock figure | Directly counted | Residual figure |
### Advantages of Perpetual Inventory
1. Book balances continuously reconciled with physical stock
2. Interim P&L can be prepared at any time (stock figure always available)
3. Discrepancies identified quickly; corrective action taken immediately
4. Obsolete and slow-moving materials surfaced early
5. Assists fixation of stock levels (min/max/reorder)
6. Prevents overstocking and understocking
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## Continuous Stock Verification
Physical verification of each item on a rolling, day-by-day basis — not all at once at year-end.
Key Conceptual Distinction:
| Focus | |
|---|---|
| Perpetual Inventory System | Recording book balances after each transaction |
| Continuous Stock Verification | Physical verification of those recorded book balances |
They are complementary: perpetual inventory gives the expected figure; continuous verification confirms it physically.
### Advantages of Continuous Stock Verification
1. No closure of normal work for stock-taking
2. Immediate identification and correction of discrepancies
3. Store staff remain alert due to surprise check element
4. Reduces unnecessary material purchases (dormant stock visible)
5. Enables quick preparation of final and interim financial accounts