Question

how are many differences between the periodic and perpetual inventory systems

Answer 1

Periodic and Perpetual Inventory System : The periodic system depends on occasional physical count of inventory to determine the closing inventory balance and the cost of goods sold. whereas the perpetual inventory system keeps continuous track of inventory balances. Periodic and perpetual inventory system are two contrasting systems.

Difference between Periodic and Perpetual Inventory System

1. Accounting :

Perpetual inventory system: under this system, continuous updates are made to either the general ledger or inventory ledger as and when inventory transactions happen.

Periodic Inventory System : Under this system, no updates are made to cost of goods sold, until physical count is not done. Physical count is used to derive the cost of goods sold within that period

2. Cost of Goods Sold​​​​​​ of Inventory

Perpetual Inventory System : Under this system, there are continuos updates to the cost of goods sold account as each sale is made.

Periodic Inventory System :Under the periodic inventory system, the cost of goods sold is calculated in totality at the end of the accounting period. It is done by adding total purchases to the beginning inventory and subtracting closing inventory.

3. Use of Computer vs Manual System :

Perpetual Inventory System : Computer systems are usually used as it is impossible to track lots of transactions at unit level of each accounting date.

Periodic Inventory System : Manual accounting system can also be used due to its simplicity. Hence it can be used by small businessmen which can also cheaper compared to computer systems