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Periodic and Perpetual Inventory Systems

1. What are the similarities and differences between periodic and perpetual inventory systems?

2. What types of companies use periodic inventory systems?

3. What types of companies use perpetual inventory systems?

4.. What are the basic journal entries used to record inventory transactions?

5. What are the differences between perpetual and periodic inventory related journal entries?

Solution Preview

1. What are the similarities and differences between periodic and perpetual inventory systems?

The similarities are both the methods match the cost of goods soled with the sales revenue for those same goods. Thus both are in accrodance with the matching concept.

The difference are - the perpetual method requires that a record be maintained for each item carried in inventory and therefore needs additional recordkeeping. This has advantages such as the detailed record can be used for deciding when to reorder the material or doing demand analysis. The perpetual system has a built in check. Since record for each item is kept, the quantity can be known at any time. In periodic system, physical count is taken at the end of period. In a perpetual system, the income statement can be prepared without taking ...

Solution Summary

The solution presents an analysis of the perpetual and periodic inventory systems

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