Inventory Management

InventoryAs per AS- 2, the term inventories means assets, - held for resale in the ordinary course of business - in the process of production for such sales, or - in the form of material or supplies to be consumed in the production process or rendering of services.

Inventory Systems
Periodic Inventory SystemUnder this method ,physical inventory is usually taken at the end of the year or at regular intervals. It involves actual counting of units , weighing and measuring each product in stock at that date.This system is suitable for enterprises having a large quantity of low cost items.Derives cost of sales by adding opening inventory to purchases and deducting the cost of sales.

 Perpetual Inventory systemIt provides a continuous record of additions to or reductions in the goods on day to day basis . Firms usually keep an account of inflows and outflows of materials in stores ledger . It involves innumerable entries and cost calculations throughout the year , hence prohibitively expensive . It can be performed without affecting normal operations of business . also better inventory control is possible as stock position is available all the time .It derives closing stock by adding opening stock to purchases and deducting cost of sales.

 Methods of valuation FIFO LIFO HIFO Weighted Average Method Specific Price method Base Stock Method Specific Identification method Standard cost method Latest Purchase Price method