The Perpetual vs Periodic Inventory System: Understanding Inventory Management

💡The perpetual inventory system updates inventory and cost of goods sold accounts in real-time, while the periodic inventory system updates them periodically.

🔢In the perpetual inventory system, each sale triggers a computation of the cost flow, allowing for precise inventory valuation methods.

📅The periodic inventory system updates inventory and cost of goods sold accounts at specified intervals, which may be daily, weekly, or monthly.

⚖️Inventory valuation methods, such as FIFO (first in, first out), LIFO (last in, first out), and weighted average, can be applied in both perpetual and periodic inventory systems.

📊The choice between the perpetual and periodic inventory system depends on the nature of the business and the level of real-time inventory tracking required.

What is the difference between the perpetual and periodic inventory system?

—The perpetual inventory system updates inventory and cost of goods sold accounts in real-time, while the periodic inventory system updates them periodically.

How do inventory valuation methods differ in the perpetual and periodic inventory systems?

—Both the perpetual and periodic inventory systems allow for inventory valuation methods such as FIFO, LIFO, and weighted average.

Which businesses typically use the perpetual inventory system?

—Businesses that require real-time inventory tracking, such as retail stores or e-commerce businesses, often use the perpetual inventory system.

Which businesses typically use the periodic inventory system?

—Businesses that do not require real-time inventory tracking or have low inventory turnover, such as seasonal businesses or small-scale operations, may use the periodic inventory system.

How often are the inventory and cost of goods sold accounts updated in the periodic inventory system?

—The inventory and cost of goods sold accounts are updated periodically, which can be daily, weekly, or monthly, depending on the business's preference.

00:00The video introduces the perpetual and periodic inventory systems.

00:13The perpetual inventory system updates inventory and cost of goods sold accounts in real-time.

01:30The periodic inventory system updates inventory and cost of goods sold accounts periodically.

02:59Both perpetual and periodic inventory systems allow for inventory valuation methods such as FIFO, LIFO, and weighted average.

04:53The choice between the perpetual and periodic inventory system depends on the nature of the business and the level of real-time inventory tracking required.