GRADE 11
LESSON
WEEK 10 - LESSON 1 of 4
33
INVENTORY SYSTEMS
Perpetual inventory system
Periodic Inventory System
 The movement of stock is recorded on an
ongoing or continuous basis. The exact
quantities and types of stock items on
hand are shown by the system at any
point in time.
 Undertakings that are selling one type of
commodity, like furniture, cars, or
computers will make use of the perpetual
stock method.
 The physical stocktaking is conducted to
verify the stock on hand.
 There is no continuous recording of the
movement of trading stock. The value of the
trading stock on hand cannot be worked out
during the financial year.
 It is used by businesses like supermarkets
that sell large quantities of trading stock
with low value.
 The value of the stock on hand at the
financial year-end is calculated by doing a
physical stocktaking.
COMPARISON BETWEEN PERPETUAL AND PERIODIC INVENTORY SYSTEMS
PERIODIC SYSTEM
Stock purchases are recorded in the
Purchases account – expense account
Carriage on purchases/ custom duties are
recorded directly in the Carriage on purchases
/ Custom duties account
Returns on stock purchases are credited in the
Purchases account
Donations of stock are credited in the
Purchases account
Drawings of stock are credited in the
purchases account
A stock-take is conducted periodically to
determine the amount of stock on hand
There is no cost of sales account. A
calculation is required to determine the cost of
sales
33 - ACCOUNTING GRADE 11 - CAPS
PERPETUAL SYSTEM
Stock purchases are recorded in the trading
stock account – asset account
Carriage on purchases/ custom duties are
recorded in the trading stock account
Returns on stock purchases are credited in the
trading stock account
Donations of stock are credited in the trading
stock account
Drawings of stock are credited in the trading
stock account
The balance of the trading stock account is the
amount of stock which should be on hand. A
stock-take is conducted to verify this amount
and determine stock losses / deficits
The cost of sales is calculated on a
continuous basis
1
IMPORTANT
Perpetual stock system
Periodic stock system
 The Trading stock account is
 The Purchases account is used
used when goods are bought.
when goods are bought
 When goods are returned the
 When goods are returned the
Trading stock is credited.
Purchases account is credited
(recently changed)
 Cost of sales is calculated with
every sale and returns.
 Cost of sales is not calculated
with every sale or returns. In order
to determine Cost of sales a
calculation is required.
 Cost of sales is only determine at
the end of the month or at the end
of the financial year.
PERIODIC SYSTEM means
NEVER
use
the
TRADING STOCK ACCOUNT
(during the financial year)
the
use
ALWAYS
PERPETUAL SYSTEM means
PERIODIC - ADVANTAGES
It is cost effective as there is expensive equipment like bar codes and scanning equipment
It is not necessary to calculate cost of sales on a continuous basis
This system is suitable for businesses where it is difficult to determine the cost price of
individual items
PERIODIC - DISADVANTAGES
Control over stock is not very effective
Theft is not quickly detected – a stock-take is necessary to determine leakages or theft
No trading stock deficit can be calculated – the business does not know how much stock they
should have
33 - ACCOUNTING GRADE 11 - CAPS
2
PERIODIC INVENTORY
CALCULATION OF COST OF SALES
Opening stock
Value of the stock at the beginning of the year
Closing stock
Value of stock at the end of the year obtained by conducting a physical
stock taking. The closing stock at the end of the year becomes the
opening stock at the beginning of the next year
Purchases of trading stock (cash and credit)
Purchases
Creditors allowances Returns of goods to creditors
Net purchases
Net sales
Purchases less creditors allowances less donations of stock less
drawings of stock
Sales less debtors allowances
Gross profit
Sales less cost of sales
FORMULA TO CALCULATE COST OF SALES
Opening stock
Plus Purchases
Carriage on purchases
Other buying expenses
Less Closing stock
Cost of sales
xxx
xxx
xxx
xxx
xxx
(xx)
xxx
Other buying expenses
custom duties
freight costs
import duties / taxes
harbour / dock charges
Remember
Carriage on sales does
not affect cost of sales –
it goes to Profit and
Loss account
CALCULATING GROSS PROFIT
Sales – Cost of sales = Gross
profit
% Gross profit on cost of sales = gross profit x 100
Cost of sales
1
% Gross profit on sales = gross profit x 100
sales
1
33 - ACCOUNTING GRADE 11 - CAPS
3
EXAMPLE
Use the following information to calculate the cost of sales on the last day of the accounting period
on 28 February 201 3
Stock – 1 March 2012
Purchases for the year
Carriage on purchases
Custom duty
Stock 28 February 2013
R60 000
R450 000
R20 000
R5 000
R35 000
Answer
Opening stock
Plus Purchases
Carriage on purchases
Custom duty
R
60 000
450 000
20 000
5 000
535 000
Less Closing stock
Cost of sales
35 000
500 000
ACTIVITY 1
1.1 Use the following information to calculate the purchases for the year ended 28 February
2013
Credit sales
Carriage on purchases
Allowances to debtors
Cost price of goods on 1 March 2012
Cost price of goods on 28 February 2013
Cost of sales
ANSWER
33 - ACCOUNTING GRADE 11 - CAPS
R90 000
R8 000
R5 500
R20 000
R40 000
R67 000
4
1.2
The following information was taken from the accounting records of three separate
businesses.
Calculate the unknown amounts and percentages on 29 February 2012
INFORMATION
Balances on 29 February 2012
Opening Stock
Purchases
Carriage on purchases
Cost of goods available for sales
Less Closing stock
Cost of sales
Gross profit
Sales
Gross profit on cost of sales
Gross profit on turnover
Business A
60 000
A
8 000
198 000
55 000
B
71 500
214 500
C
33,33%
Business B
56 000
120 000
7 500
D
E
135 500
54 200
F
40%
G
ANSWER
A
B
C
D
E
F
G
H
I
J
K
L
33 - ACCOUNTING GRADE 11 - CAPS
5
Business C
48 000
115 000
H
169 000
I
130 000
J
208 000
K
L
ANSWERS
LESSON
33
ACTIVITY 1.
1.1.Use the following information to calculate the purchases for the year ended 28 February
2013
Opening stock
Purchases
???
Closing Stock
Cost of sales
20 000
87 000
107 000 \
(40 000)
67 000
1.2 The following information was taken from the accounting records of three separate
businesses.
Calculate the unknown amounts and percentages on 29 February 2012
A
198 000 – (8 000 +60 000)
= 130 000
B
198 000-55 000 = 143 000
D
56 000 + 120 000 + 7 500
=183 500
G
Gross profit x 100
Sales
54 200 x 100 = 28.57%
189 700
J
208 000 -130 000 =78 000
E
183 500 – 135 500 = 48 000
H
169 000 – (48 000+115 000)
= 6 000
K
Gross profit x 100
Cost of sales
78 000 x 100 = 60%
130 000
33 - ACCOUNTING GRADE 11 - CAPS
6
C
Gross profit x 100
Cost of sales
71 500 x 100 = 50%
143 000
F
135 500+ 54 200
=189 700
I
169 000 – 130 000 =39 000
L
Gross profit x 100
Sales
78 000 x 100 = 37.5%
208 000