Test 3 - General Journal, ledger, trial balance, Perpetual inventory system

3 advantages of the perpetual inventory system

1. Short term income statements can be prepared as the cost of sales is known at any time

2. The possibility of running out of inventory is reduced as the business owner knows how much trading stock is left after each trial

3. Fast and slow moving inventorycan be identified, allowing for better inventory management and purchasing decisions.

3 Disadvantages of the perpetual inventory system

1. The perpetual inventory system is more expensive to setup than the periodic inventory system

2. Training is required

3. Stocktake still needs to be done once a year

2 advantages of the periodic inventory system

1. Simple and straight forward

2. Cheap to install and operate

3 disadvantages of the periodic inventory system

1. Accurate profit statement can not be proudced without a stocktake

2. The business may need to close for a stocktake

3. Difficult to identify stock losses and slow moving lines.

What are the 4 types of source documents

Tax invoice

Cheques
Receipts

Adjustment note

What is a tax invoice

Credit sale of inventory or a service provided icluding GST.

What is a cheque

A written order to pay an amount to a supplier.

Receipts

Documents acknowledging payment received.

Adjustment note

The return of inventory