Comparing periodic and perpetual inventory systems

For each statement below, identify whether the statement applies to the periodic inventory system, the perpetual inventory system, or both.

a. Normally used for relatively inexpensive goods.

b. Keeps a running computerized record of merchandise inventory.

c. Achieves better control over merchandise inventory.

d. Requires a physical count of inventory to determine the quantities on hand.

e. Uses bar codes to keep up-to-the-minute records of inventory.

A system that tracks the variations in the inventories of a business entity is known as an inventorymanagementsystem. This system of the business entities facilitates them to track their inventories, re-order them timely, andvaluationof the same for accurate reporting.

In accounting, inexpensive goods denote ordinary or cheap goods. Such kind of inventory is counted physically at the end of an accounting period, and companies prefer to use theperiodic inventory system for the same.

The perpetual inventory system of accounting useselectronic mediumssuch as computers to track the inventory transactions of a business concern. It enables the companies to record thesale and purchase of inventories immediately.

The perpetual inventory system controls inventory in a better way because it immediately records the changes in themerchandise inventories and does not require any physical investigation. The use ofcomputers minimizes the chances of human errors and mistakes.

The periodic inventory system requires thephysical count of inventoryat the end of an accounting period because this inventory system tracks related transactionsperiodically and does not use electronic mediums.

The perpetual inventory system records the inventory transactions on areal-time basis. Hence, it enables the business to draw up-to-the-minutes records of the inventories as and when required forre-ordering and re-checking purposes.