Explore BrainMass

Perpetual vs periodic inventory systems

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

Why are perpetual inventory systems so much more popular today than back in the early 1960s and earlier? Why would a company employing a perpetual inventory system still take a physical inventory periodically?

What are the journal entries a merchandising organization would use to record the purchase and subsequent sale of merchandise? How would these transactions differ with a periodic versus a perpetual inventory system?

© BrainMass Inc. brainmass.com September 23, 2018, 4:32 pm ad1c9bdddf - https://brainmass.com/business/inventory/470460

Solution Preview

Perpetual inventory systems are more popular today for several reasons:

1. Computerized accounting systems allow sales to be costed out at the time of the sale transaction. POS (point of sale software) automatically reduces inventory when a sale is recorded.
2. Perpetual systems allow for monthly or even daily financial statements to track sales and cost of sales. Fifty years ago, a company really didn't know the financial results of a year of business until after inventory was counted and adjusted in the accounting records.
3. Modern inventory systems allow businesses to quickly adjust to changing prices, competitive issues and other marketing and supply problems.

Why would a company employing a perpetual inventory system ...

Solution Summary

The 463 word solution fully answers the questions together with a number of examples and further explanations.