Wednesday, March 11, 2009

Periodic and Perpetual Inventory Differences

What are the main differences that exist between periodic and perpetual inventory accounting? Are periodic accounting systems still relevant to businesses today?

Business that that use periodic inventory accounting have to update their inventory balances periodically as opposed to continually. This inventory accounting method has been used before the introduction of point-of-sales scanners and inventory systems. Now it is easy for retailers to update their inventory balances periodically instead of trying to account for every item sold on a daily basis. 

In contrast, perpetual inventory system accounting, records each sale of merchandise and places an entry in the company's inventory account. The introduction of point-of-sale systems and computers greatly advanced the use of the the perpetual inventory system. This is now the most common way to keep track of an inventory system 

A perpetual inventory system also immediately reduces sold inventory from stock and adds inventory back to stock when a customer returns merchandise to a store. Perpetual inventory accounting systems provide better decision support because of the accuracy. Mainly because every inventory transaction is being recorded and monitored by a computer system. 

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