PERIODIC AND PERPETUAL

The periodic and perpetual inventory systems are different methods used to track the quantity of goods
on hand. The more sophisticated of the two is the perpetual system, but it requires much more record
keeping to maintain. The periodic system relies upon an occasional physical count of the inventory to
determine the ending inventory balance and the cost of goods sold, while the perpetual system keeps
continual track of inventory balances. There are a number of other differences between the two systems,
which are as follows:

 Accounts. Under the perpetual system, there are continual updates to either the general ledger
or inventory ledger as inventory-related transactions occur. Conversely, under a periodic
inventory system, there is no cost of goods sold account entry at all in an accounting period until
such time as there is a physical count, which is then used to derive the cost of goods sold.
 Computer systems. It is impossible to manually maintain the records for a perpetual inventory
system, since there may be thousands of transactions at the unit level in every accounting
period. Conversely, the simplicity of a periodic inventory system allows for the use of manual
record keeping for very small inventories.
 Cost of goods sold. Under the perpetual system, there are continual updates to the cost of goods
sold account as each sale is made. Conversely, under the periodic inventory system, the cost of
goods sold is calculated in a lump sum at the end of the accounting period, by adding total
purchases to the beginning inventory and subtracting ending inventory. In the latter case, this
means it can be difficult to obtain a precise cost of goods sold figure prior to the end of the
accounting period.
 Cycle counting. It is impossible to use cycle counting under a periodic inventory system, since
there is no way to obtain accurate inventory counts in real time (which are used as a baseline for
cycle counts).
 Purchases. Under the perpetual system, inventory purchases are recorded in either the raw
materials inventory account or merchandise account (depending on the nature of the purchase),
while there is also a unit-count entry into the individual record that is kept for each inventory
item. Conversely, under a periodic inventory system, all purchases are recorded into a purchases
asset account, and there are no individual inventory records to which any unit-count information
could be added..Transaction investigations. It is nearly impossible to track through the
accounting records under a periodic inventory system to determine why an inventory-related
error of any kind occurred, since the information is aggregated at a very high level. Conversely,
such investigations are much easier in a perpetual inventory system, where all transactions are
available in detail at the individual unit level.

Sources: https://www.accountingtools.com/articles/what-is-the-difference-between-the-periodic-and-
perpetual-in.html