Generally, the following two methods are used for physical verification of stock: 1. Annual Physical Verification 2. Perpetual Inventory Control.

Method # 1. Annual Physical Verification:

In this an independent person of a high rank known as verifying officer checks the stock lying in store once in a year, so as to see that the quantities as shown in store-ledger, bin cards and actually available in bins tally each other. After verifi­cation, verifying officer submits a list of shortages, excess and comments about damaged, sur­plus, obsolete and unserviceable stores.

In this method checking is started from one part of the store-room and make the round of all the stores, checking all the items in a certain number of bins each day and comparing them with the balance shown on the bin cards and in the stores ledger. In the larger companies one or two men or as many as may be required by the particular business may be engaged continuously in counting materials on hand.

In this method at the end of the year, the store is closed and in a few days complete checking is done. The advantage of this method is that a thorough check of all the items is performed at a time and all the discrepancies are known collectively.

Method # 2. Perpetual Inventory Control:


This is a perpetual or continuous check throughout the year in such a way that each item is checked at least once. In this system, the material is checked as it reaches to its minimum level.

This can be performed by the store-keeper or some­body else specially engaged for this task as he notices, that the balance on the bin card has reached the minimum. Special provision is made for checking items which have not reached their minimum during a period.

The advantage of this method is that the store not to be shut down for some time. Only minimum quantities are counted, weighed etc., therefore, less labour and time is taken. This method is comparatively more accurate.

This method is very suitable for large firms having huge quantities of different materials. If annual physical verification is done in such plants, complete shut-down of the stores may pro­duce large losses to the owner.


Therefore, for small plants which takes hardly few days for complete checking, “Annual Physical Verification” is done. In such plants necessity of shutting down the plant also does not arise, as daily issues and receipts are not much.


Following differences are noticed in the Physical Verification of stores, state how you would adjust in the stores ledgers.

Example Solution:

There are certain differences which are normal and it is difficult to avoid. Wast­age occurring from these differences arises from the handling of such material. Such expenses should be included in production cost and are added to the factory overheads.


But the abnormal wastage arising due to theft, carelessness, obsolescence etc., cannot be included in the cost of production. Such differences are debited or credited to Profit and Loss Account.

On these prin­ciples the decisions on these cases is taken as mentioned below:

1. 50 units of material A at the rate of Rs.15 will be shown as issued in stores ledger and Rs.750 debited to Profit and Loss account.


2. (a) Entry for 100 units of material B be made in receipt columns of Stores ledgers and Rs.800 be credited to stores ledger account.

(b) Balance 50 units of material B will again be credited for value Rs.400 and item is credited in Store Ledger.

3. There are two ways for adjusting such differences. In one theory no entry or adjust­ment is made and we should wait till next stock taking is done and confirm whether there is actually carelessness or not.

In second theory we should not question the accuracy of stock-taking because it will lift the belief from stock taking. According to this theory differences in Material C is adjusted by showing 30 items issued and expenditure of Rs.120 is booked in factory overheads.


4. The loss will be written off and hence Rs.300 is debited to Profit and Loss Account and the account of material disclosed in Stores Ledger.

5. The loss being normal, it shall be entered as issue of 110 units of material E in Stores Ledger. The loss of Rs.220 shall be booked in factory overheads.

6. Material F for 10 units shall be issued to supplier and Rs.50 shall be debited to supplier and Rs.8 shall be written off and shall be added to factory overheads.