What are Periodic and Perpetual Inventory System?
Submitted by:
Entities may use either the perpetual system or the periodic system
Submitted to:
to account for inventories. The periodic and perpetual inventory systems
Topic: are two different methods used to tract the number of products they have
available. The more sophisticated one is perpetual inventory system, it
Adjusting Entries and
offers many benefits over the periodic system and is now used by all
Worksheet Preparation: major retailers, but it requires much more record keeping maintaining.
Research about Periodic Under this method, purchases, purchase returns and allowances, purchase
discounts, sales, and sales returns are immediately recognized in the
and Perpetual Inventory
inventory account, assuming that there is no theft, spoilage, or other
System. losses, so the inventory account balance should always remain accurate.
Usually, businesses with high sales volume and multiple retail outlets need
perpetual inventory system. Periodic inventory accounting systems are
normally better suited to small businesses. This method uses an occasional
physical count of the inventory to determine the ending inventory balance
and the cost of goods sold. Under this method, merchandise purchases are
recorded in the purchases account, and the inventory account balance is
updated only at the end of each accounting period.
Activities include in Perpetual inventory system are such as: received inventory items,
goods sold from stock, items moved from one location to another, items picked from inventory
for use in the production process, and items scrapped.
The following examples contain several journal entries used to account for transactions in a
perpetual inventory system:
1.) When goods are purchased:
1.2) When expenses such as freight-in insurance etc. are incurred:
1.3) When goods are received but not yet invoiced by supplier:
1.4) When goods are returned to supplier:
1.5) When goods purchase to a supplier is discounted:
2.) When goods are sold to customers:
2.2) When goods are returned by customer:
In the periodic inventory system, all purchases made between physical inventory
counts are recorded in a purchase account. When a physical inventory count is done, the
balance in the purchases account is then shifted into the inventory account, which in turn is
adjusted to match the cost of the ending inventory, (2019, Accounting tools).
The following examples contain several journal entries used to account for transactions in a
Periodic inventory system:
1.) When goods are purchased from supplier:
1.2) When expenses are incurred to obtain goods for sale--freight-in, insurance etc:
1.3) When goods are discounted by supplier upon settled date payment:
1.4) When goods purchase are returned to supplier:
2.) When goods are sold to a customer:
2.2) When goods sold are returned by a customer:
2.3) When goods sold are discounted upon settled date payment by a customer:
Reference Guide in the two Inventory systems for journal entries:
BY: Brown, M. (2019). https://www.double-entry-bookkeeping.com/inventory/perpetual-inventory-system-journal-entries/.
References
Blystone, D. (2019). Periodic Inventory vs. Perpetual Inventory: What’s the difference?
https://www.investopedia.com/articles/investing/053115/understanding-periodic-vs-perpetual-
inventory.asp
(2020). The difference between the periodic and perpetual inventory systems.
https://www.accountingtools.com/articles/what-is-the-difference-between-the-periodic-and-
perpetual-in.html
Perpetual Inventory System.
https://www.accountingformanagement.org/perpetual-inventory-system/
Brown, M. (2019). Perpetual Inventory System Journal Entries.
https://www.double-entry-bookkeeping.com/inventory/perpetual-inventory-system-journal-
entries/
Brown, M. (2019). Periodic Inventory System Journal Entries.
https://www.double-entry-bookkeeping.com/inventory/periodic-inventory-system-journal-
entries/
Periodic Inventory System.
https://www.accountingformanagement.org/periodic-inventory-system/
