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Perpetual and Periodic Inventory Systems

In: Business and Management

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Perpetual and Periodic Inventory Systems

Examples of companies that use perpetual inventory would be a place like Best Buy or Target, where they constantly keep track of how much inventory is available for sale and the inventory that they have sold. For instance, if they sold fifty televisions in one day and had twenty-five left they would know that immediately just by looking it up in their computer system because it is tracked each time they sell something. This also lets them look at how sales are going for certain items, and if they feel they are going to quickly run out of an item they will order more. And if they purchased twenty laptops they would instantly be put into the computer system and they would be able to see that they have them in stock even if they weren’t out on the sales floor. The perpetual inventory system constantly updates accounting records for merchandising actions, mainly inventory quantity and availability.

A periodic inventory system is one that updates the accounting records for merchandise transactions only at the end of a period. The amount of time in that period is not always the same. This inventory system is used by companies that do not need a perpetual inventory system or those that do not have the resources. An example would be a small family run business that sells paper goods. They sell maybe fifty boxes of tissues a month. They aren’t going to keep track of each sale they make because they don’t need to. At the end of the month they will do a physical count of how many boxes they have left, and at that point they will analyze how sales are going and order more boxes if necessary. And when they do order more they don’t immediately add that count to what they have, they will check inventory again when they are scheduled to. The periodic inventory system relies heavily on a physical count of the inventory at the end of the…...

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