into the computer and stored.

Periodically, these data are

used to update the computerized inventory ledger

(detailed inventory records).

4. After a physical inventory is taken, the inventory count

data are entered into the computer. These data are

compared with the current balances and a listing of the

overages and shortages is printed. The inventory

balances are then adjusted to the quantities determined

by the physical count.

By entering additional data, the system described

above can be extended to aid in maintaining inventory

quantities at optimal levels. For example, data on the most

economical quantity to be purchased in a single order and

the minimum quantity to be maintained for each item can

be entered into the computer records. The computer

software is then programmed to compare these data with

data on the book inventories. As necessary, the computer

program begins the purchasing activity by preparing

purchase orders.

Chapter Four: Inventories and the cost of goods sold

174

The system can also be extended to aid in processing

the related accounting transactions. For example, as cash

sales are entered on an electronic cash register. The sales

data are accumulated and used for the daily accounting

entries. These entries debit cash and credit sales as well as

debit cost of merchandise sold and credit merchandise

inventory.

9- Taking a physical inventory:

In Chapter 1, we explained the need for businesses to

make a complete physical count of the merchandise on

hand at least once a year. The primary reason for this

procedure of "taking inventory" is to adjust the perpetual

inventory records for unrecorded shrinkage losses, such as

theft, spoilage, or breakage.

The physical inventory usually is taken at (or near)

the end of the company's fiscal year. Often a business

selects a fiscal year ending in a season of low activity. For

example, most large retailers use a fiscal year ending in

January.