Question

Explain the essential differences in accounting treatment between perpetual and periodic inventory systems. Use journal entries to demonstrate each difference

Answer 1

Ans: Difference between Perpetual and Periodic Inventory System

Points of difference	Perpetual Inventory system	Period Inventory System
Means	Continuous track of Inventory throughout the year	Physical track of Inventory once or twice in a year.
Burdensome	This system is burdensome as more and more records has to be maintained to keep Continuous track of Inventory throughout the year	Less burdensome as physical verification is took place once or twice in a year
Alarming of Theft	This system help in early identifying any type misappropriation or theft of inventory	Misappropriation or theft of inventory is identified when periodical verification took place
Cost	It is more costly	It is less costly than Perpetual inventory system.
Use of Computer system	More use of computer system	less use of computer system
Uses	It is used in those place the cost of inventory is high such as banks.	It is used where the value of inventory is not significant