What is the Difference Between Perpetual and Periodic?
🆚 Go to Comparative Table 🆚The main difference between perpetual and periodic inventory systems lies in the timing of when inventory levels and costs are updated. Here are the key differences between the two systems:
Perpetual Inventory System:
- Inventory balances are updated continuously as products are received or sold.
- The cost of goods sold (COGS) is calculated after every sale.
- Requires the use of computer software for tracking and updating inventory records.
- Suitable for businesses with larger and more complex inventory levels, as well as those with higher sales volumes.
Periodic Inventory System:
- Inventory levels and costs of sales are updated at the end of a specific time period, such as a month or quarter.
- The COGS is calculated in a lump sum at the end of the accounting period by adding total purchases to the beginning inventory and subtracting ending inventory.
- Can be managed using manual counts and record-keeping, making it less expensive and time-consuming compared to perpetual systems.
- Suitable for smaller businesses and those with low sales volumes, as inventories are small enough to manage using manual counts.
In summary, perpetual inventory systems provide more accurate and up-to-date information on inventory levels and costs, making them more effective for businesses with larger inventories and higher sales volumes. On the other hand, periodic inventory systems are simpler and more cost-effective for smaller businesses with lower sales volumes and less complex inventory management needs.
Comparative Table: Perpetual vs Periodic
Here is a table comparing the differences between perpetual and periodic inventory systems:
| Feature | Perpetual Inventory System | Periodic Inventory System |
|---|---|---|
| Inventory Updates | Continuously updated | Updated at scheduled times |
| Stock Tracking | Real-time tracking | Tracked at periodic intervals |
| Record Keeping | Electronic records | Manual counts and records |
| Cost of Goods Sold | Continuously updated | Calculated at the end of the accounting period |
| Effort | Less manual effort after setup | More manual effort required |
| Suitability | Better for businesses with larger, more complex inventory and higher sales volumes | Better for smaller businesses with low sales volumes and easier-to-manage inventories |
Perpetual inventory systems update purchase and sales records constantly, providing real-time information about inventory and cost of sales. They are more suitable for businesses with larger, more complex inventory levels and higher sales volumes. On the other hand, periodic inventory systems only record updates to inventory and costs of sales at scheduled times throughout the year, not constantly. They are often less expensive and time-consuming than perpetual inventory systems and are better suited for smaller businesses with low sales volumes and easier-to-manage inventories.
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- Era vs Period
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- Periods vs Groups
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