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📚 Welcome to “My Teacher” – Your Trusted Companion for Accounting Concepts! In this video, we explore one of the most essential chapters in cost accounting for students of Class 12 (NEB) and BBS First Year: Accounting for Materials under the Perpetual Inventory System using FIFO and LIFO Methods. 📌 Introduction to Accounting for Materials In cost accounting, materials are the essential inputs required to manufacture products or provide services. They can include raw materials, components, and supplies. The correct handling and recording of materials are crucial because they form a significant portion of the total cost incurred by a business. Accounting for materials includes not just recording purchases, but also managing inventory levels, issuing materials for production, and evaluating the cost of materials at every stage. This area of accounting ensures that businesses can keep track of material usage, prevent wastage, and maintain efficient stock levels. 🧾 Understanding the Perpetual Inventory System The Perpetual Inventory System is a modern approach to inventory control where material records are updated immediately with every transaction. That means every purchase, issue, or return of materials is recorded in real-time. This system provides continuous knowledge about the quantity and value of materials available in stock without waiting for the end of the accounting period. In this system, every transaction is recorded in a stores ledger, which includes columns for date, receipts, issues, and balance. The ledger always reflects the current quantity and value of the stock. For students and accountants alike, understanding this system is crucial for accuracy and effective inventory management. Let’s explore both methods one by one. 🔹 FIFO Method – First In First Out Under the FIFO (First In First Out) method, it is assumed that the materials that were purchased first are issued first. That means, materials are issued in the order they were purchased, and the oldest stock is used up first. For example, if a company purchased 100 units on January 1 and 50 units on January 10, and later issued 120 units, under FIFO the first 100 units issued would be taken from the January 1 purchase, and the next 20 from the January 10 purchase. This method is logical and aligns with the natural flow of many products, especially those with a short shelf life such as food, medicine, and chemicals. The closing stock under FIFO is always valued at the most recent prices, which is useful during times of price inflation. In accounting records, when FIFO is used under the perpetual inventory system, every issue of material is matched with the cost of the earliest available stock. The stores ledger is updated immediately after each transaction, showing clear and consistent records. 🔹 LIFO Method – Last In First Out In contrast, the LIFO (Last In First Out) method assumes that the most recently purchased materials are issued first. That means, the latest stock is considered to be used up before older stock. For instance, if a company purchased 100 units on January 1 and 50 units on January 10, and then issued 120 units, under LIFO the first 50 units would be taken from the January 10 purchase and the next 70 from the January 1 purchase. This method does not follow the actual physical flow of materials but is often used for accounting and financial purposes. During times of inflation, LIFO helps in reducing the recorded profit by using up the higher-cost recent materials first. As a result, businesses may benefit from lower income tax liabilities. 🗂️ The Role of the Stores Ledger under Perpetual System The stores ledger is a vital part of material accounting under the perpetual inventory system. It records every transaction related to receipts and issues of materials along with the balance left after each transaction. When using the FIFO or LIFO method, the ledger must show: The quantity received or issued The rate per unit The total value of materials The balance of materials left in stock For each transaction, the inventory is revalued based on the chosen method. This provides an accurate and real-time picture of inventory and its value, which is essential for decision-making, auditing, and reporting. 🙏 Thank You for Watching! We hope you enjoy learning with us. At "My Teacher", we are committed to making accounting and economics simple, clear, and exam-focused for Class 11, 12, and BBS-level students. If you found this video helpful: ✅ Please like the video ✅ Subscribe to our channel for more helpful lessons ✅ Share it with your classmates ✅ Don’t forget to comment below if you have any questions or want us to cover any other topic 🏷️ Relevant Hashtags #AccountingForMaterials #FIFO #LIFO #PerpetualInventorySystem #Class12Accounting #BBSFirstYear #CostAccounting #StoreLedger #InventoryValuation #AccountingNepal #MyTeacher #Class12NEB #TUBBS #MaterialsManagement #AccountingMadeEasy #NepalEducation