• Business
  • Finance
  • Banking
  • Education
  • General
  • Law
  • Science
  • IT
  • English

Key Differences

Know the Differences & Comparisons

Difference Between Perpetual and Periodic Inventory System

Last updated on July 26, 2018 by Surbhi S

periodic vs perpetual inventory systemThe material is an integral part of the production cost, as it is composed of 80% of the total product cost. So every manufacturing concern keeps a track of its inventory purchased, returned and issued during the year, through the inventory record system. The inventory system is of two types: Perpetual Inventory System, in which the movement of the stock is recorded continuously and Periodic Inventory System, which updates the inventory records from time to time only after the physical count of the stock.

Inventory management system should be by the store’s department selected, keeping in mind, the planning and control of stock. Many people utter confusion in understanding the two methods, so here in this article, we provide you all the important differences between the Perpetual and Periodic Inventory system, in tabular form.

Content: Perpetual Inventory System Vs Periodic Inventory System

  1. Comparison Chart
  2. Definition
  3. Key Differences
  4. Conclusion

Comparison Chart

Basis for ComparisonPerpetual Inventory SystemPeriodic Inventory System
MeaningThe inventory system which traces every single movement of inventory, as and when they arise is known as Perpetual Inventory System.The Periodic Inventory System is an inventory record method whereby, the inventory records are updated at periodic intervals.
BasisBook RecordsPhysical Verification
UpdationsContinuouslyAt the end of the accounting period.
Information aboutInventory and Cost of salesInventory and Cost of goods sold
Balancing FigureInventoryCost of Goods Sold
Possibility of Inventory ControlYesNo
Affect on business operationThis method does not influence the business operation.Under this system, the business operations need to be stopped during valuation.

Definition of Perpetual Inventory System

The inventory control method in which every inflow and outflow of stock are constantly updated, through an electronic point of sale system, is known as Perpetual Inventory System. The records maintained under this system are always up to date. In this system an inventory ledger is maintained to keep complete and continuous record of the receipts and issue of inventory in which the closing balance is the inventory in hand. The calculation of closing inventory can be done as under:

Inventory at the Beginning + Receipts – Issues = Inventory at the end

The inventory records are kept in Bin Card (Stores Keeper) and Stores Ledger (Cost Accounting Department). To ensure accuracy, physical verification of stock takes place at regular intervals, and they are compared with the recorded figures. If there is any shortage due to loss or theft, then it can be easily located, and corrective actions can also be taken immediately. Although the system is costly and complicated.

Definition of Periodic Inventory System

The inventory record system in which the movement of inventory is captured at a regular interval, say once or twice in a year, only after taking physical verification of stock is known as Periodic Inventory System. Normally, at the end of the financial year, the physical count of stock takes place after which the records are adjusted and updated accordingly. The following formula is used to track the cost of goods sold during the year:

Inventory at the Beginning + Purchases – Inventory at the end = Cost of Goods Sold

There are various shortcomings of this system as the amount of the cost of goods sold may include the goods lost or theft during the year. However, with the help of sales revenue, an estimation could be made regarding the lost inventory but this figure is not accurate. If the physical valuation of the stock is done more than once in a year, then this system can also cost higher. Discrepancies can be detected only at the end of the accounting period.

Key Differences Between Perpetual and Periodic Inventory System

The following are the major differences between perpetual and periodic inventory system:

  1. The inventory system in which there is real time recording of the receipts and issues of inventory is known as Perpetual Inventory System. Periodic Inventory System tracks the details of inventory movement at periodic intervals.
  2. The Perpetual Inventory System is based on book records while Periodic Inventory System, takes physical verification as its base.
  3. In Perpetual Inventory System the records are updated continuously, i.e. as the stock transaction takes place. Conversely, in Periodic Inventory System the records are updated after a short duration.
  4. In Perpetual Inventory System, real-time information about Inventory and Cost of sales is provided whereas the Periodic Inventory System provides information about Inventory and Cost of goods sold.
  5. In Perpetual Inventory System, the loss of goods is included in closing inventory. Conversely, in Periodic Inventory System the same is included in Cost of Goods Sold.
  6. In Perpetual Inventory System, there is no interference in the regular workflow at the time of stock taking and verification while in Periodic Inventory System, the regular business operations may have to be stopped.

Conclusion

The Periodic Inventory System is less costly than the Perpetual Inventory System, but it gives more accurate information because ongoing recording and timely verification of inventory are done. In addition to this, the financial statements are also prepared quickly as the inventory records are maintained properly in the Perpetual Inventory System, which is not possible in case of Periodic Inventory System. The Perpetual Inventory System is best suited for big enterprises while small businesses can go for Periodic Inventory System

Related Differences

  • Difference Between Gross Profit and Gross Profit Margin
  • Difference Between Wildlife Sanctuary and National Park
  • Difference Between Void and Illegal Agreement
  • Difference Between Job Costing and Batch Costing
  • Difference Between Local Time and Standard Time

You Might Also Like:

Difference Between Bin Card and Stores Ledger Lifo Vs FifoDifference Between LIFO and FIFO Marginal Vs Absorption CostingDifference Between Marginal Costing and Absorption Costing statement of affairs vs balance sheetDifference Between Statement of Affairs and Balance Sheet Product cost Vs Period costDifference Between Product Cost and Period Cost Cost Accounting Vs Financial ManagementDifference Between Cost Accounting and Financial Accounting

Comments

  1. Lucia says

    March 6, 2022 at 11:16 pm

    i would love to get tutoring in Financial accounting

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Top 5 Differences

  • Difference Between PERT and CPM
  • Difference Between Micro and Macro Economics
  • Difference Between Developed Countries and Developing Countries
  • Difference Between Management and Administration
  • Difference Between Qualitative and Quantitative Research

Related Differences

  • Difference Between Gross Profit and Gross Profit Margin
  • Difference Between Wildlife Sanctuary and National Park
  • Difference Between Void and Illegal Agreement
  • Difference Between Job Costing and Batch Costing
  • Difference Between Local Time and Standard Time



New Additions

  • Difference Between Ex-showroom Price and On-road Price
  • Difference Between Speak and Talk
  • Difference Between Economy Class and Business Class
  • Difference Between If and Whether
  • Difference Between Hotel and Motel
  • Difference Between FIR and Chargesheet
  • Difference Between Norms and Values
  • Difference Between Society and Community
  • Difference Between Sourcing and Procurement
  • Difference Between National Income and Per Capita Income
fb-follow youtube follow

Copyright © 2023 · Key Differences · Contact Us · About Us · Privacy