Under periodic inventory, the inventory account and COGS account are updated in a timely manner this could be once a month, once a quarter, or once a year. There is no system and accounting for shrinkage, losses, theft and waste throughout the accounting period and they can be discovered only after the end of the period. The periodic inventory system relies upon an occasional or timely physical count of the inventory to determine the level of inventory and the cost of goods sold (COGS). It is assumed that goods not on hand at the end of accounting period have been sold. The cost of goods sold is computed by deducting closing inventory from the sum of opening inventory and purchases made during the current period. A perpetual inventory system is a method of inventory control that continuously updates the inventory records every time a transaction occurs, such as a purchase, a sale, or a return. Perpetual inventory systems, for example, can increase accounting efficiency but they incur a large upfront. This method provides for the recording of purchases, purchase returns and purchase allowances on a daily basis but does not provide for a continuous inventory or for a daily computation of the goods sold.Īt the end of each accounting period, a physical count is made of the quantity of goods on hand and the value of the inventory is determined by using an inventory pricing method (FIFO, LIFO or average cost) and attaching costs to units counted. Both types are best suited to specific situations. Some firms even suspend plant operations when this is done. This physical inventory is usually taken near the end of the accounting period. The recognition of each sale or purchase happens immediately upon sale or purchase. You can consider this recording as you go. Periodic is a manual process whereas perpetual is automated. In periodic inventory physical count is done to measure the inventory level whereas perpetual inventory is updated continuously. A perpetual inventory system automatically updates and records the inventory account every time a sale, or purchase of inventory, occurs. Periodic inventory is good for small-scale businesses whereas perpetual inventory is good for high sales volume retailers or big & medium size organization. Merchandise subject to terms 2/10, 1/30, FOB shipping point, is sold on account to a customer for $25,000.Under the periodic method, the entire book inventory is verified at a given date by an actual count of materials on hand. Characteristics of the Perpetual and Periodic Inventory Systems. These are explained below: Option 1: Under the periodic inventory sy. In a periodic inventory system, the account inventory over and short does not arise because there are no accounting records available against which to compare. Explanation: All the options given in the question are the major differences between a periodic and perpetual sysytem. When posting the column totals of a cash payments journal, a debit should be posted to Cash Accounts Payable Sales Discounts Uncamned Revenue Solution: Answer is: Option 2: All of the answers are correct. The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a multiple-step statement revenue statement 0 0 report-form statement single-step statement The primary difference between a periodic and perpetual inventory system is that a periodic system determines tht inventory on hand only at the end of the accounting period periodic system keeps a record showing the inventory on hand at all times periodic system provides an easy means to determine inventory shrinkage periodic system records the cost of the sale on the date the sale is made
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