Stock Control
Senior 6 · Entrepreneurship
Stock Control
Lesson 3 of 4
30 min
A supermarket on KN 4 Avenue scans every item at the till, and its computer knows within seconds that 37 tins of tomato paste are left on the shelf. A small boutique in Nyamirambo writes no stock records at all; once a year the owner closes for a day and counts everything. Both businesses need the same two numbers for their accounts, the cost of goods sold and the closing stock, but they find them in opposite ways. (Illustrative businesses.)
Definition
Perpetual inventory system: stock records are updated at every receipt and every issue or sale, so the quantity, and usually the cost, of stock on hand is always known. Periodic inventory system: no running stock record is kept; stock is counted at the end of each period, and the cost of goods sold is calculated from the count.
Definition
Cost of goods sold (COGS): the cost of the stock sold in a period. Stocktaking: physically counting and listing the stock on hand on a given date. Shrinkage: stock lost through theft, damage, evaporation or error, found as the difference between the recorded and the counted stock.
| Feature | Perpetual | Periodic |
|---|---|---|
| When stock is recorded | At every receipt and sale | Only at counts, usually the period end |
| Stock on hand during the year | Known at any time | Unknown until the next count |
| Cost of goods sold | Recorded with each sale | Calculated once, from the formula |
| Shrinkage | Revealed: record minus count | Hidden inside COGS |
| Reordering | Automatic signal at the reorder level | Depends on the owner's eye |
| Cost to run | Higher: software, barcodes, staff time | Lower, simple |
| Suits | Supermarkets, pharmacies, wholesalers, factories | Small shops with many cheap items |
Even a perpetual system needs counts: records drift from reality through theft, damage and errors, and the count is what corrects them.
Worked example 1: periodic system
The boutique's figures for the year (in francs): opening stock 3,400,000; purchases 18,600,000; carriage inwards 250,000; returns outwards 350,000; closing stock by count 4,100,000; sales 24,000,000. Find the cost of goods sold, the gross profit and the gross margin.
Gross profit: . Gross margin: .
Worked example 2: what the perpetual system would have shown
Suppose the boutique had kept perpetual records, and they showed closing stock at cost of Frw 4,350,000, while the count found Frw 4,100,000.
Shrinkage: francs, about of sales.
Analysis: under the periodic system the same Frw 250,000 is still lost, but it is buried in the COGS of Frw 17,800,000 and looks like part of the cost of selling. The perpetual system names the loss, so the owner can look for its cause: theft, damage or careless recording.
Worked example 3: estimating stock lost in a fire
A warehouse burns on 30 June, before any count. From the records since 1 January: opening stock Frw 2,000,000, purchases Frw 9,000,000, sales Frw 10,000,000. The normal gross margin is 30% of sales. Goods worth Frw 600,000 are saved. Estimate the stock destroyed, for the insurance claim.
Estimated COGS: .
Estimated stock on 30 June: .
Stock destroyed: francs. This gross profit method rearranges the COGS formula; it is only an estimate, because it assumes the usual margin held.
Warning
Count carefully, or the profit is wrong. Every franc of error in closing stock is a franc of error in gross profit. Freeze movements during the count, count in pairs, record damaged goods separately, and make sure goods received just before the count are included and goods sold but not yet collected are not (the cut-off).
Accounting Stuff, "Inventory Systems: Perpetual vs Periodic". Watch how each system records a purchase and a sale, and note when each one learns the cost of goods sold.
Practice
Sources and credits
Written by Ganzaa: the two-shop case, the timeline diagram, the tables, the worked examples and the practice items. The businesses and their figures are illustrative (2026).
