Inventory Systems: Periodic vs Perpetual

A company can account for changes in inventory using either periodic inventory system or perpetual inventory system.

In the perpetual system, the company maintains a continuous record of inventory changes. All the purchases and sales of inventory are directly recorded in the inventory account. For every sale, the COGS is debited and inventory is credited.

In the periodic system, the company updates inventory records only periodically. All inventory purchases are debited to purchase account. The cost of goods sold and inventory values are determined at the end of the period. At the end of the period, we add purchases to the beginning inventory to arrive at the cost of goods available for sale. Then we subtract ending inventory to calculate COGS.

Under FIFO and specific identification methods, the values for COGS and ending inventory will be same in both perpetual and periodic inventory system. However, they will differ in LIFO and average cost methods.

Example

We will use the same example of SuperMart.