Comparing Periodic And Perpetual Inventory Accounting 101 Research Paper

2076 words - 9 pages

Accounting 110
Professor Copeland
October 21st, 2018
Nuts To You vs. International Spice & Food
Perpetual inventory is an inventory system when inventory is adjusted continuously throughout an accounting period. Every time a product is sold, the inventory decreases and every time products are purchases for inventory purposes, the count increases. In perpetuals inventory system, inventory is also adjusted when products are moved from one location to another, items picked from inventory for use in the production process or damage to product (1). Perpetual inventory system is preferred considering how it has the advantage of providing a more up to date inventory count. However, overtime the number can become less accurate due to theft or unrecorded transactions (2). Another advantage of perpetual inventory system is changes to inventory levels are recorded in real time, when inventory is purchased and when it is sold. This provides you with the ability to run reports that can immediately identify inventory items that are running low. It also prevents being out-of-stock and losing customers because of it. A perpetual inventory system is allowed to yield a much more accurate count if it has a well-organized computer database to go along with it. One disadvantage of a perpetual inventory system involves the setup cost. Most systems require the purchase of new equipment and inventory software. This equipment includes point of sale scanners which read the bar code of each item. Scanners are also required when items are received into inventory. Perpetual inventory systems also add to labor costs since all inventory must be entered into the system. Another disadvantage is the need for increased monitoring because of employee errors or customer theft requires an additional financial investment. Security monitors typically need to be installed and some companies hire security personnel. Overall, this system is a low more accurate and useful for larger companies as it eliminates the need to do physical inventory more than once a year.
Periodic inventory system is a system that is useful for recording transaction in a low technology and high-volume environment. It only updates the ending inventory balance in a general ledger when a physical inventory count is conducted. Considering how time consuming and tedious physical inventory counts are, they are only conducted once a quarter or year. However, the accounting system shows the counts from the last physical inventory count which could be from 9 months ago. Periodic inventory has its advantages and disadvantages. One of the advantages is that this system is useful for smaller business that have very minimal amount of inventory. Considering how small the business might be, it is much easier to count inventory along with estimating the cost of goods sold for interim periods (3). Another advantage is since no permanent employee is required for physical counting of merchandise inventory under this system it is...

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