What is the difference between periodic inventory and perpetual inventory?

Answer 1

Periodic inventory method calculate ending stock at the end of the accounting period, which could be Month to Date or Year to Date, while Perpetual inventory system calculates the ending stock on a continuous basis after each transaction (Purchase or Sell).

Within Retail industry, periodic inventory method used for inventory valuation at the stores, whereas distributer like SuperValu (in US) follows perpetual inventory method to track inventory in their distribution centers.

As a best practice, some of the retail companies are using perpetual accounting method to track inventory available in warehourses and distribution centers.

In an idealistic world, perpetual inventory method can provide the true and real time inventory information, however due to complexities in consolidating all the purchases, sales, shrinkages and other market factors, it is advisable for retail companies to follow periodic accounting method to analyze and review the results before presenting the inventory valuation results to internal and external agencies like Shareholders, Income Tax Authorities, et el.

Answer 2

Hope this helps...

Periodic Inventory System Perpetual Inventory System Inventory account and cost of goods sold are non-existent until the physical count at the end of the year. Account and the balance of costs of goods sold and inventory account exist all the time. Purchases account is used to record purchases. No individual purchases account but the purchases are recorded in the Inventory Account. Purchase Return account is used to record Purchases Returns account. No individual Purchase Returns account but the purchases return are recorded in the Inventory Account. Cost of goods sold or cost of sale is computed from the ending inventory figure Record cost of goods sold/cost of sale - inventory is reduced when there is a sale. For goods returned by customers there are no inventory entries. Returns from customers are recorded by reducing the cost of goods sold and adding back into inventory.