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Table of Contents
Title Page........................................................................................................... 1
Introduction to the Issue««««««««««««««««««.«.5 ± l4
Practical Study of the Organization««..««..............««««...........14- 18 Data Collection Methods««««««««««««««««««««.19
SWOT«««««««««««««..«««««««««««««.13 ± 15
Recommendations«««««««««««««««««««««««17 References .........................................................................................................
This report would not have been possible to me without the support and encouragement of my teacher ³Sir FR Tariq´ sahib who believed in me and my capabilities. I am also thankful to the managing director of Nafees Tiles and Marble manufacturer group who gave me very useful information for the completion of my report. Further, I am especially thankful to my family, who has always been a source of great motivation for me. Ch. Shahzad Yaqoob.
The managing director of this group gave me very respect and answers all of my questions related to my topic in detail. drugstores. . easily approachable and helpful. There I saw that they are also polluting the environment and I give some suggestions also. I will say that what we are reading in books people are doing in their practical life. In this System no effort is made to keep up-to-date records of either the inventory or the cost of goods sold. Instead. there is no need of Inventory Subsidiary Ledger. As the inventory records are not updated as transactions occur. grocery stores and in all those places where seller are selling very small amount goods. The cost of goods sold for the entire year then is determined by a Short Computation. Further. I am talking about those organizations which are not register and are working as a small scale industry. But these small storekeepers are still using the periodic because they want to reduce their expenses and try to focus on selling. In my practical study I have seen that this system is using only small storekeepers. Even. I have also seen that some organizations are interested in earning profit and are not ready to maintain a good setup of records due to reason that they don¶t want to show their actual income. And is very different from perpetual inventory system where transactions are recorded immediately and inventory is updated on regular basis. This physical count determines the amount of inventory appearing in the balance sheet. Why I choose NTMG because I belong to west Punjab and people are there. Also show me factories of marble cutting. this system is not applicable to multinational companies. NTMG is a manufacturer of marble tiles and trade in house decoration items also they deals in sanitary units in bulk. these amounts are determined only periodically-usually at the end of each year. Finally. But just differ in this respect that we will be called an MBA but they will remain as they are.Abstract Periodic inventory system is a system of inventory in which updates are made on a periodic basis. The foundation of the periodic inventory system is the taking of a complete physical inventory at year-end. today a small and very small storekeeper would like to use perpetual system because in that system he aware about the inventory stock every time.
And in accounting. period of three days. Ending of a calendar year. This stock of resources can be either manpower. raw materials. This word is also used for a list of the contents of a household and for a list for testamentary purposes of the possessions of someone who has died.* Inventory This word is used in business language for goods and materials that we have to purchase or we have to acquire for business and held available in our stock. since they can be converted into cash quite easily. A time difference during which something occurs or is expected to occur. The point at which something ends. to perform a duty or to solve a problem´. but to be conservative the lowest value is usually used in financial statement´ * System It can be defined as ³all those procedures. Or it is any length of time. It is a time interval which shows one cycle of repeating phenomenon. routines which are established or designed to do a specific activity. . For instance. "periodic feelings of anxiety" Having a structure characterized by periodic sentences. we consider inventory as an asset.Introduction to the issue Period It is a time gap between to actions. It is an amount of time. ³A company's merchandise. a period of waiting. the ending of a warranty period etc««. Periodic Happening or recurring at regular intervals recurring or reappearing from time to time. machines. and finished and unfinished products which have not yet been sold is also called inventory These are considered liquid assets. methods. capital goods or material at different times during process. It is a definite length of time appears between to instant. There are various meanings of valuing these assets. Or this term also refers to the stock of resources which have an economic value at any time.
who sell large volume and low priced items face a difficulty of determining quickly the cost of each item so that the ³cost of goods sold´ can be recorded at the time of each sale. Because this stock taking involves verification of the physical quantities of stores in hand. Under this system. However. . medical store. And then taking the physical quantity and its records they determined the cost of cost of goods sold. But still there are many store keepers and dealers that sell large volume of low priced items and doesn¶t make any effort to record the cost of goods sold at that time but they wait for the ending of accounting period.´ Although inventory consists a huge portion of the assets of many organizations and it sum up a greater portion of that organization¶s fixed assets in financial statements and people know that accounts produce the most accurate figures of inventory in the financial statements. uses a similar procedure. Thus. But it is difficult in case of a drugstore or a general store that sells a number of products in daily routine and records these sales in his cash register at marked selling price. all these drugstore.Periodic Inventory System ³All the three concepts given above. Therefore. For instance: Automobile dealers or home appliances stores make a limited number of sales each day and can easily refer to their records at the time of each sale to record the cost of each car or appliance sold. grocery store or hardware store etc etc. That¶s why annual stock taking is organized because during production process it is very difficult to take stocks accurately. home appliances store. its record must be very accurate. for those. whatever they assigned for their stores. stock taking is undertaken at the end of accounting year. But with the help of computer system you can do this now easily. now defines that it is a procedure or a method to design or establish a record of an organization¶s goods or stocks in such a definite and specific manner that repeats itself after an interval of time. method or a design to determine the cost of goods they sold during an accounting period is called Periodic Inventory System.
The sale of inventory When merchandise is sold on cash. For example: y Purchase of 1. For example: y Sale of 1.000 General Journal Date Account Titles/Explanation 2009 Purchases Jul Cash (Purchase of 1000 units on cash) Purchases Accounts payable (Purchase of 1000 units on account) Ref Debit $ 7000 Credit $ 7000 $ 7000 $ 7000 2) .000 units on cash and on account at $7 each = $7.The purchase of inventory When merchandise is purchased.General Journal Operation of Periodic Inventory Systems 1) .000 units on cash and on account at $7 each = $7. If merchandise is sold on account then receivables are debited by ³accounts receivables´ and sales account is credited in similar manner. If merchandise is purchased on cash then cash is credited by ³cash account´ and if it is made on an account then payables are credited by ³accounts payables´.000 . an account is made entitled ³Purchases´ and cost of merchandise is debited to this account rather than debiting ³inventory´. ³Cash account´ is debited and an account is made entitled ³sales´ which is credited by the amount of sale.
000 $ 20. The cost of unsold goods at the end of accounting period.000 With this information. Cost of goods on hand at 1st January 2010 Cost of purchases during the period Cost of goods on hand at 1st June 2010 = = = $ 5.Date 5 cash Account Titles/Explanation sales (sale of 1000 units on cash) 6 Account receivables sales (sale of 1000 units on account) Ref Debit $ 7000 Credit $ 7000 $ 7000 $ 7000 3) Cost of goods sold: If a drugstore or any store keeper uses periodic inventory system then he does not record the cost of items he sold during an accounting period but waits till end.000 . The cost of goods on hand at the beginning of period b.000 $ 4. For example: The data has been taken from a grocery store. To know the cost of goods sold at that time. Cost of goods sold statement Cost of goods on hand at beginning Add: purchases Cost of goods available for sale Less: Unsold goods on hand at ending Cost of goods sold during period $ 5. a.000 4. he needs the following information.000 $ 25. store keeper will calculate the cost of goods sold as follows. c. The cost of merchandise purchased during the accounting period.000 $ 21.000 20.
n/30. he come to know that merchandise of $1000 were defective. Contra accounts always have a normal balance that is opposite to what they are contra to. you must note the invoice price of merchandise and then subtract it from any discounts.e. After it. 6) Purchase Returns and Allowances and Purchase Discounts ³Purchases´ normally shows debit balance because it takes place of ³Inventory account´. To know the cost of this ending inventory. 5) Cost of merchandise purchased To determine the cost of the merchandise purchased during the accounting period. they are closed at year end) and only appear in a periodic inventory system. you have to add any freight charges or other kind of transportation costs incurred while purchasing process from shipment of goods to place of business. following steps should remember. The following entries illustrate purchases returns and allowances and purchase discounts in periodic inventory systems: For example: y y y On 1st November 2010. a. Add the costs of each type of goods. he paid the amount to supplier and received a discount amount. The balance of these two contra accounts is a credit because "Purchases" is a debit. At 10th of november. It has two contra accounts known as "Purchase Discounts" and "Purchase Returns and Allowances" that reduce it to determine "Net Purchases". At 3rd november. They simply serve to replace the corresponding inventory portion of an entry that exists in a perpetual inventory system. He returned the defective goods to supplier. Nafees stores purchases merchandise of $ 5000 on account with the terms 2/10.4) Cost of ending inventory The merchandise (inventory) at the beginning of an accounting period is called beginning inventory and that remains at the end of period is always called ending inventory. It will be your ending inventory cost. Multiply the count for each type of goods in store by its cost c. Purchase-type accounts are temporary accounts (i. .. Count the unsold items in store and stock room. b. returns and allowances.
Ref Debit Credit $5000 $ 5000 $1000 $ 1000 . // Accounts payable 3nd purchases (Defective goods returned to supplier) y These transactions will be recorded in record as follows. Accounts payable 1st (Purchase of 1000 units on account with 2/10. n/30).General Journal Date Account Titles/Explanation 2010 Purchases Nov.
in such a case. y Sometimes. In such a case. 3rd Accounts payable Purchases returns & allowances (Returned defective merchandise but received purchases allowance) Ref Debit $ 40 $ 40 Credit y If a supplier agrees to bear the cost of transporting the sold goods to purchaser.2010 Nov. purchaser agrees to bear the transportation expense. 3rd Accounts payable Cash Purchase discount (cash paid to supplier within discount period) $ 4000 $ 3200 $ 80 y Sometimes supplier offers the purchaser that do not return the goods and get a discount of 4% on defective goods. Thus it is better to built a new account as ³transportation-In´ . the amount of reduction in the cost of goods will be purchase allowance for the purchaser and he will pass the entry to settle the account as follows. Date Account Titles/Explanation 2010 Nov. the cost of transportation will be added to the cost of goods purchased and per unit price of goods will increase from the invoice price. the total cost of the goods is that amount which a purchaser must pay to supplier otherwise purchaser will have to bear these expenses.
. company or a store keeper can close the process of inventory system in the same manner as in perpetual inventory case. Purchases Discounts and Transportation-In together generate the cost of goods purchased. Add: Transportation-In Cost of goods purchased $ xxxxxx xxxxx $ xxxxxx xxxxx $ xxxxxx xxxx $ xxxxxx Closing process of Periodic Inventory System There are several ways to close the periodic inventory system but best way is to create a cost of goods sold account. Purchases Less: purchases return & allowances Purchase discount Net Purchases.Date Account Titles/Explanation 2010 Nov. Purchase Return and Allowances. 3rd Transportation ± In Cash Ref Debit $ $ 70 70 Credit (Paid expense charges on the merchandize purchased) y At the end of the accounting period. Once this account has been created. This calculation will be in income statement of any merchandising company as follows. the costs of the Purchases. cost of beginning inventory and the cost of purchases during the period. Entry will be passing as follows. 7) Creating cost of goods sold account: Cost of goods sold account is always contributed by the costs of two things.
balance sheet and all financial statement are same like other accounting systems. 3rd Inventory(year end balance) Cost of goods sold (To close the cost of goods sold account) Ref Debit Credit $ xxxxx $ xxxxx Next is preparation of income statement. 3rd Cost of goods sold account Purchases Beginning inventory (To close the account that are was contributing to the cost of sold account) Ref Debit Credit $ xxxxx $ xxxx $ xxxx 8) To close the cost of goods sold account As the cost of goods sold account has been closed. the inventories on hand (year ending inventories) will again be the beginning inventory of the next year. entry will be pass as follows. So transferring these on hand goods for the next year. Date Account Titles/Explanation 2010 Nov.Date Account Titles/Explanation 2010 Nov. worksheet. .
Advantages of periodic inventory system y y y y y y It is very cheap. inventory records get updated every time there is a sale. The cost of goods sold for the entire year is determined by a Short Computation. In a periodic system. the ending-inventory is determined by an actual (physical) count of every item and its cost is computed by using a suitable method such as FIFO. No continuous record of changes (receipts and issues of inventory items) is kept. y Lack of Constantly Updated Movement Record In a perpetual inventory system. No long calculations required. This makes it possible to identify quickly how. No technical skills are required. It keeps the overall value of inventory accurate. this doesn't happen. Without constantly check and balance. This makes it difficult for the company to budget and assess revenue except around the times for inventory checks. It is also simple. Instead. y y y y Disadvantages of a Periodic Inventory System y Total Inventory Value Gap Every piece of stock has some value. LIFO. inventory worker cannot determine the total value until the scheduled inventory check. At the end of an accounting period. weighted averages. Also can be a problem if the company experiences a disaster such as fire or huge theft and needs to file an insurance claim to replace the stock. There is no need of Inventory Subsidiary Ledger. etc. when and where the inventory moved from the sale floor or warehouse. The inventory . these amounts are determined only periodically-usually at the end of each year. No effort is made to keep up-to-date records of either the inventory or the cost of goods sold.
then he knows he has to order 25 hats to meet the employer's requests. leading and dominant group of that area. the inventory owner doesn't take a huge financial hit. if an inventory worker knows that an employer wants to keep a minimum of 50 hats in stock. In other words. it is very successful. solid inventory count. In a periodic system. The group is involved in the business of marble tiles and house decoration goods from the last 20 years in District Rahim Yar Khan in division Bahawalpur. y Looser Stock Control Knowing the exact location. For example. Further. Now by the grace of Allah. value and type of every piece of stock permits a worker to have much more control over the inventory. This type of system becomes impractical for expensive items like appliances companies and cars companies because the financial loss to the inventory owner can be much greater. . Top management and employees by hard work and sincere efforts increased the demand of their marble for furnished houses in West Punjab. Practical Study Of the Organization Introduction: For the practical study of the issue assigned. and if he also knows that 25 hats are left.worker may not know where specific pieces of inventory went or to whom they were sold between inventory reviews. y Not Ideal for Expensive Items Periodic inventory systems operate on the concept that. The group started its working in 1990 from a single store but today has become the well reputed group in West Punjab. this control is lost because of the lack of an up-to-date. if a low-value item is lost or stolen. its production capacity fulfilled the expectations of the management and proved a successful venture. I choose Nafees Tiles and Marble manufacturer group (NTMG). periodic systems are used when the inventory owner can afford to lose a few pieces of stock.
he feels that what his father¶s vision is. It has six branches. I found that they are earning profit approximately Rs. Thus.10. His father was a landlord but was deeply interested in doing some business. He completed his MBA from Punjab University in 2002 and started a professional career from his own family business. he opened a store at the name of his son. Nafees (GM) was a student of 4th class. 00. . 00. It came into existence in 1990. From the research of this group.000 per month with an average sale of Rs. So he decided to join his family business after studies. Nafees was in his childhood. He started his education career from a primary school of the local area.000. At that time. 3. At that time. All are in different cities of district Rahim Yar Khan. In start he has to face lots of problems but with the help of his uncle he takes a start.000. He passed the matriculation exam in 1998. Being a family member. With the dynamic leadership and his management skills. he changed a small store into a leading group. Nafees was born in a noble family having four brothers and one sister.History and background: This group in start was a very simple store and deals only hardware products up to trading concern.
Observing In daily life there are too many things which help me to write something on this topic. Interviewing (face-to-face) I take help from the general manager of NTMG through an interview and questionnaire about the topic which was assigned to me and it was very good experience. Online Data Collection .DATA COLLECTION METHODS Data collection techniques which I used: Using available information Observing Interviewing (face-to-face) Focus group discussions Using Available books In this method of data collection I used many books and other helping material which I took from my friends which have done MBA or doing MBA from other universities.
Operation of Periodic Inventory System in it. Also closing stock becomes the opening stock of the next period and is debited to trading account along with purchases. books are enough to understand any topic of syllabus but I also use Google search engine to clear my concepts about the issue assigned to me. We use this system because no longer calculations are required and it saves our time and money. We save money in this sense that we don¶t hire personnel for the maintenance of the proper records of inventory level as no technical skills are required for it. 4) What is you procedure when you make a sale? . 3) How you save your money? Answer. It is equal to sales minus cost of goods sold. closing stock should be valued and brought into account very carefully as I saw in my practical study. A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate cost against revenues. Gross profit is not sales minus purchases.Although. Questionnaire: This questionnaire is brought to you by the special assistance of general manager of NTMG 1) Do you use periodic inventory system? Answer. Therefore. Yes 2) Why do you use this system? Answer.
10) What procedure you adopt for the purchases and how you made payments to suppliers. First of all. we loss 3 boxes of tiles and the price of each box of tiles is. 2100 in monthly sales. As I told you we are using periodic inventory system. 5) What entry you pass when purchases are made? Answer. we often used to purchase on account. storekeeper brings out extra units that give us loss. The branch manager sent a . spoilage or shoplifting? Answer. Answer. 7) Do you keep the proper record of receipts and issues of inventory items? Answer. But sometimes in this process. We debit the cash account and credited the sale¶s account in our general journal if sale is at cash. No. storekeeper counts the whole stock and report to the branch manager. we have no such subsidiary ledgers. So we will include the amount of lost boxes in the cost of goods sold. But. Otherwise. very good question. This amount will be included in total sales. 700. The storekeeper is so familiar with the stock that he knows what type of items has sold and how many left. 6) Do you have inventory subsidiary ledgers? Answer. it¶s Ok. We send a simple notepad to storekeeper and he brings the demanded items out of store. No. Simply purchases account is debited and accounts payable account is credited. 9) How you come to know that stock is going to an end? Answer. Yes. say Rs. 8) Then how you treat such a loss? I mean how you treat shrinkage. we don¶t have such a system.Answer. We manage. accounts receivables are debited. Because. Then we will include Rs. For example.
Accounts payable««««««««««««««Rs. The accountant sends it to factory in the shape of a summary. Bank receipt voucher is used when payment is received and deposited into bank account of the organization. Debit. Yes.requisition to head office. Deposit receipt is attached to the bank receipt voucher as supporting document. . store intimation. gate inspection receipt note which he sends back to head office after checking the items properly. It is called a Demand Order Procedure. In the factory. please tell me how you pay for your purchases to suppliers? Answer. Payment voucher is made by accountant and the amount of purchases is paid through cheque. storekeeper receives the bill and attaches some documents like gate entry pass. 11) Sir. XXXXX Cash/ bank«««««««««««Rs. the purchase officer prepares Dispatch Advise as per items on the bills. The general entry is passed as follows. I mean to me and I approved the demand and purchase officer purchases it. The purchase officer delivers these documents in the shape of a complete set to the accountant. it is a Payment Voucher. And the following entry is passes. Credit. XXXXX 12) What is procedure for the preparation of bank receipt voucher? Answer. We deposit the money directly to the supplier¶s account through bank or sent a cheque to the supplier on his address also photo copy of cheque is attached to the voucher when payment is made through cheque. After receiving the goods with bill.
.. There are so many types of transactions for which journal vouchers are prepared. some transactions. SWOT Analysis Strengths The quality of marble is very good. when goods are sold to customers on account... Along with other financial statements. many hidden bank charges and many unpaid. The dimensions of marble tiles and other item are always accurate as per demand.. XXXXX 13) Is there any use of Journal Voucher? Answer.. Sometimes... it is also the responsibility of accountant that he prepare bank reconciliation statement to match the balance of cash at the end of accounting period.. The personnel are very ... cash are in transit. NSF cheque left from recording so preparation of bank reconciliation is necessary.. Credit. Journal Voucher is used when there is no cash or bank is involved in a transaction.. The tiles and other house decoration items are good and usually found non defective. For example..Debit. Bank Account ««««««««««««««««««Rs. 14) Do you prepare Bank reconciliation statement? Answer. XXXXX Accounts receivable ««««««««««..Rs. All the branches are at corner and getting edge of the local market.
that. Price of marble tiles and other decoration units remain always high from the local market. Good control of general manager to other branch managers.honest and sincere to the firm. They can earn money from their own carriage vehicles. You can say that it is a small scale industry. Opportunities They can easily expand their business by getting loan on low mark-up from government. Warehouses and stores are in city area and is proper management control. Management policies are strict. which needs to be increased for better competition. factory area could come in the centre of a city. . Company does not have its own carriage vehicles to deliver the tiles to customers at home and losing a big source of income. Then they will have to shift it to some other place because they are polluting the environment by noise pollution and from its wastage. Although inventory method is not accurate and management doesn¶t seems interested in proper records of inventory but they are running the business with full confidence. That¶s why they are losing many loyal customers and their respect. Threats If they will not expand their business. They are not expanding their business to further cities of Pakistan that¶s why the name of the organization is not regarded and familiar on national level. competitors can get edge by investing more capital because competitors are the big threats for a company. They can get better inventory control by using perpetual inventory system. Due to increasing population. They can be socially responsible by proper wastage system of factory¶s wastage. In this age of technology. Management doesn¶t seem interested in inventory control. they should use the latest methods of inventory control and new software to reduce the workload on employees. They can increase the number of customers by lowering the price of items. this group is working up-to district area. Weakness The major weakness is this. Production capacity is low.
retailers general stores. home appliances stores. There is no need of current information and accounting records. Finally. perpetual system is costly. grocery stores. There are many stores and some companies also. and technology made the business so easy that now at just a single ³click´ you can buy anything at anywhere. very small like whole sale stores. car dealers and in merchandising businesses. hardware stores. This kind of information only helps them at the year end to calculate the cost of goods sold and for tax returns. All are using perpetual inventory system. or owner called ³proprietor´. where organizations are in competition. In this age of technology. a. rather than using personnel to continually count the inventory for accuracy.Conclusion. of inventories and low cost items on hand. Further. The reason I got is that periodic invent. It also allows businesses to focus on selling inventory. c. All the goods are available at the sale site and sometimes owner may be so familiar with the stock that there is no need of perpetual system. that are run by a single person.tory system is used in small. sell so low cost items and have old traditional manual systems because they have no other choice but to use periodic system having no deep interest in inventories on hand. either large or small. b. You are required to hire an accountant who maintains these records up-to-date. Many stores. in their daily routine works. drugstores. Organizations are so much interested about their inventory stocks and keep their stocks up-to date that any time they can tell you about their inventory stock. Thus the use of period . I concluded that the use of periodic inventory system is very rare. Here are some factors that prompt these storekeepers and proprietors to use a periodic inventory system to operate. To see the application of periodic inventory system. I visit different organizations but I found that a very few companies are using this system. because need for current information about inventories and sales is not so much important.
Suggestions The most important liquid asset in the balance sheets of the organizations are inventories. Even a small mistake in valuation of inventory may cause a material effect of the company¶s income statement. That¶s why I recommend that Nafees group should use perpetual inventory system and should be interested about their stocks. They should expand their business by getting loan from government on low mark-up and increase their production capacity. They should have their own carriage vehicles for loading and unloading the materials for selling or purchasing purposes.inventory system is very rare and is used only to run the small stores and shopkeepers. Thus. ending inventory of an accounting period is the beginning inventory of the next period so error in valuation of inventories will carry over into the financial statements of the following year. due to large size of inventory and different types of products may be stored in the different location of ware houses where chances of error and error in the valuation of inventories may not be readily acceptable. They should also use other methods of inventory control like gross profit method or the retail methods for the operation of their business. They should also be socially involved to keep the environment better and clean«««««« . Also.
Nafees.References: 1. Haka. Larson (The University of Texas at Austin) 4.Financial & managerial accounting (14th edition) by William.com .Mr.www. 3. GM (NTMG) 6. Bettner.google.Fundamental accounting principles (12th edition) Kermit D.A text book of Cost Accounting by Kashif Saeed.Basic Accounting by Javid Akther 5. Carcello 2.
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