For efficient inventory control, it is necessary that the various items of inventory must be continuously checked and compared with records maintained. This is done by Perpetual Inventory system. Perpetual inventory means a system of maintaining continuous stock records through bin cards and stores ledger. This implies continuous stock taking in which a certain number of inventory items are checked and verified everyday or at frequent intervals. Bin card is a simple device to maintain perpetual inventory records for each item of inventory. It is prepared and attached to the physical stock lying in stores. For checking the stock, entries in the bin card and in the stores ledger are compared with the actual stock. If there is no discrepancy, information in the bin card and that in the stock record card must be identical and must tally with the actual stock. If any discrepancy is found, the store-keeper has to give an explanation for it. Then necessary changes are made in the bin card and in the stock record to rectify the errors, so that both these records are reconciled.

Besides stock record cards are maintained in the production department or in stores room or in planning department. In order to have detailed information it is necessary to have columns for orders placed, goods received, goods issued, goods reserved for a particular order and goods available on any date for production.

In addition to these, the visible card index system is also used for stock records. Now with the rapid progress of electronic equipments, computers are used on large scale for inventory control.

The perpetual inventory system is beneficial to the firm in many respects. Its major advantages are as follows:

(1) The work of stock taking is more carefully done, as the work is spread over the whole year and the staff gets plenty of time to do the work.

(2) The work is done by experienced persons, as they are selected and trained for this work only. Hence, the work is done more efficiently.

(3) The strain and disturbance of the annual stock taking is avoided and up-to-date stock records are available at any time. This would enable the management to prepare annual accounts immediately after the close of the year.

(4) Discrepancies between the balances shown by book records and the physical stock are easily detected and steps can be taken to remove them before it is too late.

(5) As verification of stocks with maximum and minimum limits is also covered in perpetual inventory, there is no disruption of production due to non-availability of raw materials or over-investment in stocks.

(6) Information about stock on hand is available at any time. Hence, the production and purchase can be planned in advance.

(7) There is a moral check on the employees of the stores department, and they always remain careful and alert.

(8) The extent of loss due to evaporation and other reasons can be determined and limit of normal loss can be laid down. This helps in deciding as to how to recover normal loss from cost.

Article By – listedall.com