Difference between Periodic and Perpetual Inventory System
Financial Accounting II
BBA | BBA-BI | BBA-TT | BCIS
A periodic inventory system is an inventory system that records inventory levels at specific points in time. These points in time are usually at the end of accounting periods. Periodic systems use physical count audits, where employees actually count each and every item in the store to get an accurate inventory level. This amount is then compared to sales reports and purchase receipts to verify the amount of goods sold and to see if there are any discrepancies in numbers.
On the other hand, a perpetual system is an inventory system that records inventory into the accounting system on a continuous basis. This type of system relies heavily on automation to instantly track purchases and sales, and update the accounting system immediately. When an item is purchased, it is automatically recorded in the accounting system as an inventory item.
|Periodic Inventory System||Perpetual Inventory System|
|In periodic inventory inventory is valued at the end of the period that may be end of the month ,end of the half year ,end of the year,etc.||In perpetual inventory system inventory is valued after each nad every transaction.|
|In this system inventory account and cost of goods sold are non-existent until the physical count at the end of the year.||In this system account and balance of thecosts of goods sold and inventory account exist all the time.|
|In this system purchases account is used to record purchases.||In this system no individual purchases account but the purchases are recorded in the inventory account.|
|In this system purchases return account is used to record purchase returns.||In this system no individual purchases account but recorded in the inventory account.|
|In this system Cost of goods sold or cost of sale is computed from Ending Inventory.||In this system Cost of goods sold or cost of sale is reduced when there is a sale.|
|In this system for goods returned by customers there is no inventories entries.||In this system for goods returned by customers are recorded by reducing the Cost of goods sold and adding back to inventories.|
|Closing Entries are only required in periodic inventory system to update inventory and cost of goods sold.||Perpetual inventory system does not require closing entries for inventory account.|