INVENTORY CONTROL SYSTEM

By Mr. Shahbir

Inventory

A company's owned products which is held for sale to consumers (Divisions)

{In IESCO Inventory controlled by Manager(M.M) Material Management}

Planning /budgeting of inventory is based on previous 03 years data to forecast next year demand

Inventory accounting systems

The two most widely used inventory accounting systems are the periodic and the perpetual.

  1. Perpetual: The perpetual/continuous inventory system requires accounting records to show the amount of inventory on hand at all times. It maintains a separate account in the subsidiary ledger for each good in stock, and the account is updated each time a quantity is added or taken out.(System used by IESCO due to continues use of martial)
  2. Periodic: In the periodic inventory system, sales are recorded as they occur but the inventory is not updated. A physical inventory must be taken at the end of the year to determine the cost of goods sold. Regardless of what inventory accounting system is used, it is good practice to perform a physical inventory at least once a year.(i.e. Grid Station, Dams, Plants etc.)

Inventory costing methods

  1. First-in first-out (FIFO)
  2. Last-in first-out (LIFO)
  3. Average cost or weighted average cost. (Used by IESCO due to identical/homogeneous nature of products)

Inventory costing computation Format

Items / 200KVA T/F / Primary supplier / Siemens
Description / Pad mountain / Secondary / PEL
Location / Rwp / Inventory Level / Min-Max
Date / Purchase / Sale / Balance
Units / Unit cost / Total / Units / Unit cost / Total / Units / Unit cost / Total
Average cost or weighted average cost.
Jan 5 / 2 / 40000 / 80000 / - / - / - / 2 / 40000 / 80000
Feb 12 / 3 / 60000 / 180000 / 3 / 60000 / 180000
1 / 52000 / 52000 / 4 / 52000 / 208000
First-in first-out (FIFO)
1 / 40000 / 40000 / 1 / 40000 / 40000
3 / 60000 / 180000
Last-in first-out (LIFO)
1 / 60000 / 60000 / 2 / 40000 / 80000
2 / 60000 / 120000
80000+180000 / = 52000
5

Note: Average unit cost

Entry’s made on account

  1. On receive of material by R. Store Rwp

Store & Stock

To Supplier (PEL)

  1. Payment by F.D

Regional Store Rwp

To Bank

  1. R.Store Rwp payment to supplier

Supplier (PEL)

To F.D (IOT)

  1. Material issued to Division(for maintenance work or new connection)

Division (No.I Ibd)

To Store & Stock

  1. On receipt of material by Division

Maintenance work

To Stock (IOT)

  1. On receipt of SS cheques

S.S cheques

To Division No.I Ibd (Receivable)

S.S cheques (Super subscribe cheques) use as a cash with in IESCO/PEPCO

Atif Chaudhry