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6.01 Inventory Control Systems

6.01 Inventory Control Systems. Understand Inventory Control Method s PowerPoint #2. Types of Inventory Control Systems - Perpetual. Perpetual Inventory System Inventory is continuously updated . Used by a majority of businesses

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6.01 Inventory Control Systems

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  1. 6.01 Inventory Control Systems Understand Inventory Control Methods PowerPoint #2

  2. Types of Inventory Control Systems - Perpetual Perpetual Inventory System • Inventory is continuously updated. • Used by a majority of businesses • When new merchandise is purchased, the Inventory Account ,not the Purchases Account, is immediately debited. • There are two journal entries when goods are sold: • The items are immediately removed from the Inventory Account and placed in the Cost of Good Sold Account. • The sale is credited to Sales and debited to Cash or Accounts Receivable. • A stock record is used to show the type of merchandise, quantity received, quantity sold, and balance on hand.

  3. Types of Inventory Control Systems - Periodic Periodic Inventory System • Also called a physical inventory • Determined by physicallycounting, weighing, or measuring items or merchandise on hand • As inventory is purchased, it is debited to the Purchases account. • Purchases account is shown in the Cost of Goods Sold section • Purchases account is closed to the Inventory Account at the end of the year.

  4. Types of Inventory Control Systems – Periodic (cont’d) • When merchandise is sold to customers • There is only one journal entry. • Debit Cash or Accounts Receivable and Credit Sales. • No adjustment to Inventory or Cost of Goods Sold is needed. • The adjustment will be made at the end of the year. • Inventory Records are used to record information for Periodic Inventories. • Periodic Inventories are expensive to conduct, especially for businesses with large inventories. • Companies that use the Perpetual Inventory system take a Physical Inventory as least once per year.

  5. Questions for Understanding/Discussion • Explain the concept of a Perpetual Inventory system. • Explain the concept of a Periodic Inventory system. • How does the Perpetual Inventory system differ from the Periodic Inventory system? • How are the two systems similar? • Why is a Periodic or Physical Inventory necessary, even for Perpetual systems?

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