7 Difference Between Perpetual and Periodic Inventory System

Perpetual and periodic inventory system

In a business environment, where physical goods are being sold or purchased, it is essential to have an inventory management system. These inventory management systems divide into two major categories, called perpetual systems and periodic systems. Here are some of the most prominent differences that exist in between the perpetual and periodic inventory system.

1. Accounts handled in Perpetual and Periodic Inventory System

Perpetual and Periodic Inventory System

When it comes to a periodic system, the records related to the cost of goods sold calculates in general journal entries. However, a perpetual system will update the accounts throughout the time of the accounting period.

2. Purchases involved in Perpetual and Periodic Inventory System

Purchase Inventory

Another difference between perpetual and periodic inventory system is the purchases. When you take a look at a periodic system, a single entry is fed into the purchase account and the total purchase amount. On the other hand, the perpetual systems will record the total amount of stock purchased, along with the recording of the total number of units that have been purchased.

3. Sales Accounts in Perpetual and Periodic Inventory System

Sales Inventory

When using a periodic system, a single entry is for the sale amount and the goods reflecting that. But when it comes to a perpetual system, two entries will be recorded. The first entry will refer to the sales amount, and the second entry will refer to the cost of goods sold.

4. Cost of goods sold in Perpetual and Periodic Inventory System

Cost of goods sold

The periodic system would calculate the cost of goods sold once the stocktake takes place using the calculation as mentioned above. Then a single amount enters the booking. But when it comes to a perpetual system, the cost of goods sold updates at every only time a sale is being made.

5. Closing entries in Perpetual and Periodic Inventory System

Closing Entries

In a periodic system, enter the closing entries to showcase the cost of goods on the sale. This helps you to understand what is left in your hands. However, a perpetual system will update the accounts continuously. Therefore, no closing entries will be recorded.

6. Investigating transactions in Perpetual and Periodic Inventory System

mistakes in inventory management

When it comes to a periodic system, the transactions are not log in a unit level. As a result, it is quite challenging to investigate the transactions that are linked with mistakes in the inventory. However, a perpetual system would record every transaction per inventory unit, which helps you with understanding the errors.

7. Stock turnover rates in Perpetual and Periodic Inventory System

Stock Overturn

The last difference between perpetual and periodic inventory system is about stock turnover rates. The financial indicators play a significant role when determining the success of a product. However, the periodic system doesn’t provide a clear idea of how to calculate stock turnover rates. It will only record the cost of goods sold in intervals. However, a perpetual system will be able to provide you with an accurate view of stock data at all times.

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