The primary difference between the periodic and perpetual inventory systems is that a
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Inventory management system should be by the store’s department selected, keeping in mind, the planning and control of stock. Many people utter confusion in understanding the two methods, so here in this article, we provide you all the important differences between the Perpetual and Periodic Inventory system, in tabular form.
Comparison Chart
Definition of Perpetual Inventory SystemThe inventory control method in which every inflow and outflow of stock are constantly updated, through an electronic point of sale system, is known as Perpetual Inventory System. The records maintained under this system are always up to date. In this system an inventory ledger is maintained to keep complete and continuous record of the receipts and issue of inventory in which the closing balance is the inventory in hand. The calculation of closing inventory can be done as under: Inventory at the Beginning + Receipts – Issues = Inventory at the end The inventory records are kept in Bin Card (Stores Keeper) and Stores Ledger (Cost Accounting Department). To ensure accuracy, physical verification of stock takes place at regular intervals, and they are compared with the recorded figures. If there is any shortage due to loss or theft, then it can be easily located, and corrective actions can also be taken immediately. Although the system is costly and complicated. Definition of Periodic Inventory SystemThe inventory record system in which the movement of inventory is captured at a regular interval, say once or twice in a year, only after taking physical verification of stock is known as Periodic Inventory System. Normally, at the end of the financial year, the physical count of stock takes place after which the records are adjusted and updated accordingly. The following formula is used to track the cost of goods sold during the year: Inventory at the Beginning + Purchases – Inventory at the end = Cost of Goods Sold There are various shortcomings of this system as the amount of the cost of goods sold may include the goods lost or theft during the year. However, with the help of sales revenue, an estimation could be made regarding the lost inventory but this figure is not accurate. If the physical valuation of the stock is done more than once in a year, then this system can also cost higher. Discrepancies can be detected only at the end of the accounting period. Key Differences Between Perpetual and Periodic Inventory SystemThe following are the major differences between perpetual and periodic inventory system:
ConclusionThe Periodic Inventory System is less costly than the Perpetual Inventory System, but it gives more accurate information because ongoing recording and timely verification of inventory are done. In addition to this, the financial statements are also prepared quickly as the inventory records are maintained properly in the Perpetual Inventory System, which is not possible in case of Periodic Inventory System. The Perpetual Inventory System is best suited for big enterprises while small businesses can go for Periodic Inventory System What is the major difference between a periodic and perpetual inventory system Brainly?It is impossible to manually maintain the records for a perpetual inventory system, since there may be thousands of transactions at the unit level in every accounting period. Conversely, the simplicity of a periodic inventory system allows for the use of manual record keeping for very small inventories.
What is the primary advantage of a periodic inventory system over a perpetual inventory system group of answer choices?A periodic inventory system provides better control over inventories than does a perpetual inventory system. A perpetual inventory system computes cost of goods sold only at the end of the accounting period. A periodic inventory system computes cost of goods sold each time a sale occurs.
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