TWO INVENTORY SYSTEMS

 

 

 

PERPETUAL:

 

·        The Merchandise Inventory account is increased when inventory is purchased.

·        The Merchandise Inventory account is decreased when inventory is sold to a customer.

·        Therefore, the Merchandise Inventory account always (perpetually) shows the amount of inventory on hand.

 

PERIODIC:

 

·        Purchases of inventory are recorded in a Purchases account.

·        Inventory is not removed from the accounting records when it is sold.

·        Therefore, the amount of inventory on hand must be determined by taking a physical inventory count.

 

SUMMARY:

 

The perpetual inventory system requires more accounting entries, but it provides more up-to-date information for managing inventory.