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perpetual method of tracking inventory

I need help answering the following discussion question:

What is the perpetual method of tracking inventory? How is it different from the periodic method? Why would a company choose one method over the other? Which is the best method? Why?

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RESPONSE:

1. What is the perpetual method of tracking inventory?

The terms periodic and perpetual imply a time frame for determining the amount of ending inventory. They are different methods of tracking inventory.

Under the periodic method, the amount of goods remaining in inventory is defined periodically. Under the periodic method an account called "Purchases" is used to record the additional inventory items purchased for sale during the period. At the end of the accounting period, this method requires that the purchases account and the inventory account are closed to costs of sold and the ending inventory number from the physical inventory count be entered in the inventory account. At this point, the cost of goods sold can be determined. In other words, periodic is defined once every accounting period and usually at the end of the accounting period. When that number is determined it is used as the beginning inventory number for the next period. Thus, inventory balances are only determined periodically. (www.uic.edu/classes/actg/actg500/inventory.html)
Periodic inventory is "placed on the books when paid and valued at the end of the period by taking a physical count of the inventory then. Changes are made to the value of inventory at the end of the period, usually at month end." (http://accounting.suite101.com/article.cfm/inventory_methods_used_in_accounting#ixzz0q1IoolqY)

2. How is it different from the periodic method?

Instead, Perpetual inventory is "maintained and valued each time a change in the inventory occurs. This requires a system that counts items when they are added or taken from the ...

Solution Summary

The following solution discusses the perpetual method of tracking inventory. It discusses how it is different from the periodic method. It discuss ewhy a company would choose one method over time.

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