Issuing of Materials

Subject: Principles of Accounting

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This note is about the issuing of materials that comes under the Material Scheduling or Routing. Method of pricing material issued has two method LIFO Method and FIFO Method. This note also describes about the Perpetual Inventory System and also discusses about the advantages and disadvantages about Perpetual Inventory System. Perpetual Inventory System is the way of maintaining the record of inventory which can be hand ascertained at any time.
Issuing of Materials

Materials are kept in stores so that the storekeeper may issue them whenever the production department requires these. A storekeeper cannot issue materials unless a properly authorized material requisition is presented to him.

  1. Preparation and Treatment of material Requisition form
  2. Pricing of materials

Preparation and Treatment of Material Requisition Form

A material requisition is the most important document of an authority to the storekeeper to issue the materials. It is a normal request written in a paper from production department to store department. It is signed by the authorized person so that there may be no wrong drawl of materials.

It is prepared in triplicate. Two copies are sent to the store and one copy is sent to costing department which includes date, requisition number, description of materials, quantity, unit price, total value, etc.


Meaning of perpetual Inventory System

The perpetual inventory system is the way of maintaining the record of inventory which can be hand ascertained at any time. It emphasizes and maintains the up-to-date record and day to day checking of stocks. It is a method of recording inventory after every receipt and issue to facilitate regular checking and obviate the stocktaking.

It is also known as "Automatic Inventory System". A perpetual inventory system is a technical kind of job on where controlling stock items and maintaining store records in such a manner that stock balances at any point of time are readily available. The term "perpetual inventory" means the system of record keeping and a continuous physical verification of the stocks, with reference and store record.

It gives the perfect and accurate stock control as we can easily check out and verify the level and position of stock lying in the store at any moment by physical counting. Here are the definition of perpetual inventory system is given below:

“A system of records maintain by the controlling department, which reflects the physical movement of stock and their current balance” Chartered Institute of Management Accountants (CIMA), London,

“It is a method of recording stores balance after every receipt and issue, to facilitate regular checking and to obviate closing down for stock-taking.” Mr.Weldon,

Perpetual inventory system helps to ascertain the balance of each and every stock of the company in terms of physical quantity as well as it's monetary value held in store at all time. For this, a company may maintain bin card, in which it separate receipt and issue of materials and balance of stock are recorded privately in store.

Advantages of Perpetual Inventory System

The main advantages of Perpetual Inventory System

  • It provides an opportunity to verify the physical stock of materials daily or at regular intervals without dislocating production.
  • It helps in rapid stock taking which, in turn, helps in the preparation of interim accounts.
  • A moral check on the store staff to maintain proper stock records.
  • The investment in materials and supplies may be kept at the lowest point.
  • It is not necessary to stop production so as to carry out a complete physical stocktaking.
  • Deterioration, obsolescence etc, can be avoided.
  • Discrepancies and errors can be quickly discovered and remedial action can be taken.
  • Timely replenishment of stock is facilitated by means of reordering the level specified in the bin card.

Methods of Pricing Material Issued

When materials are purchased for a specific product, it's cost of materials received is wholly debited to that product. There would be no problem in costing materials issued and in inventory valuation if all purchase were made at the same price, but purchase made at a different time usually carries a different price and the stores ledger which is not shown in one but has several prices for the same kind of materials. Several methods are used in concerning the pricing of materials issued from the store. Here are the important methods of pricing material issued under perpetual inventory system.

  • First-In-First-Out (FIFO) Method.
  • Last-In-First-Out (LIFO) Method.
  • Simple Average (SAM) Method.

Note: As per new course of study of HSEB, SAM method is not included, so it is not explained.

First-In-First-Out Method (FIFO)

According to this method, materials received first are issued first. After the first lot of materials purchase is exhausted, the next lot is taken up for supply. The units that are from the opening stock of materials that should be treated as if they are issued first, the units from the first purchase issue next, and so on until the units which are left in the stock of materials that should be valued at the latest cost of purchases.

Advantages of FIFO Method

Disadvantages of FIFO Method

1. It is simple to understand and easy to use.

1. It is unsuitable in the case of price is rising.

2. It is applicable when the price is falling.

2. It is complex if many lots are purchased during the period at different prices.

3. It is useful in case of less transaction and price of materials are fixed.

3. This method increases the chances of clerical error.

4. It is logical because first received goods are first issued.

4. It is very hard to determine the value of the returned item.


The purchase and issues of material ‘X’ in the month of Baishak, 2071 are as follows:

Baishak 1 Opening balance 500 units@ Rs.10

Baishak 5 Purchase 1000 units @ Rs.11

Baishak 8 Issued 400 units

Baishak 10 Issued 800 units

Baishak 12 Purchase 1500 units @ Rs. 12

Baishak 15 Issued 1200 units

Baishak 20 Purchase 800 units @ Rs. 11



Last in First Out Method (LIFO)

As the name LIFO, the use of inventory is valued on the basis of the opposite sequence of receipts. The LIFO method of costing deals with the principle that materials entering production are the part of the most recent purchase. It is assumed that the most initial cost, normally replacement cost is the most significant in matching cost with revenue in income determination.

Under this method, the cost of the last materials received is used to price material issued until the lot is finished, then the next lot pricing is used, and so on through coming lot.

The closing stock is priced at the oldest prices.

Advantages of LIFO Method

Disadvantages of LIFO Method

1. This method is simple.

1. This method is practically not better.

2. This method is applicable in case of a rise in market price also.

2. In a case of a price of material is decreasing, it is not applicable.

3. The valuation of stock has no role in profit or loss.

3. For determining the price, more than one price has often to be adopted.

4. In the case of rising price, this method is move suitable.

4. This method can lead to clerical error because every time price has been changed.


At the beginning of October, a company had 10000 units @ Rs.2 per unit. Further purchase were made during the month as follows:

4th October 2000 units @ Rs.2.50 per unit

10th October 5000 units @ Rs.3 per unit

20th October 10000 units @ Rs.3.50 per unit

Issues to work place were as follows:

12th October 16000 units

28th October 10000 units



Common Terms used in Pricing of Material Issued:



1. Return to store

1. Return from store

2. Return from work order

2. Return to work order

3. Return from department

3. Return to work customer

4. Return from customer/debtors

4. Return to suppliers

5. Return from vendor

5. Return to vendor

6. Surplus

6. Shortage/loss/wastages


Koirala, Madhav, Principles of Accounting -XII, Buddha Prakashan, Kathmandu

Shrestha, Dasharatha, Accountancy -XII, M.K. Prakashan, Kathmandu

Bajracharya, Puskar, Principle of Accounting-XII, Asia Publication Pvt. Ltd., Kathmandu

Things to remember
  1. Pricing of materials returned to vendor: Materials purchased may be returned to the supplier for not being according to the order, for being defective of for not being according to sample.The quantity and  value of materials returned are shown in the issue column of a store ledger.
  2. Under LIFO and FIFO method, the materials returned to the supplier are valued at the price of the last units received.
  3. The quantity and value of the shortage of materials on stock verification are shwon generally in issued column.
  4. The materials damaged and written off are generally shown on the issue column of the store ledger at the rates.
  5. Any transfer of materials from one department to another department does not need to be shown in the store ledger account.
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  • common interests and common objectives are not necessary for society.

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