Advantages of Perpetual Inventory and Continuous Stock Taking System:
(i) The long and costly work of a stock-taking count is avoided and the stock of materials, as shown by the stores ledger (but not the work in progress) can be obtained quickly for the preparation of a Profit and Loss and Balance Sheet at interim periods, if required.
(ii) A detailed, reliable check on the stores is obtained.
(iii) Experienced men can be employed to check the store at regular intervals.
(iv) It is not necessary to stop production in order to carry out complete physical stock-taking, except possibly at the end of each year.
(v) Discrepancies are readily discovered and localized, giving an opportunity for preventing a recurrence in many cases.
(vi) The moral effect on the staff tends to produce greater care, and serves as a deterrent to dishonesty.
(vii) The audit extends to comparing the actual stock with the authorized maximum and minimum, thus ensuring that adequate stocks are maintained within the prescribed limits.
(viii) The storekeeper’s duty of attending to replenishment is facilitated, as he is kept informed of the stock of every kind of material, thus ensuring uninterrupted and safe manufacturing stocks.
(ix) The stock being kept within the limits decided upon by the management, the working capital shown in stores materials cannot exceed the amount arranged for.
(x) The disadvantages of excessive stock are avoided, as for examples
(a) Loss of interest on capital locked-up in stock.
(b) Loss through deterioration,
(c) Danger of depreciation.
(d) Risk of obsolescence.