ACCT 320 TUTORIAL_Perpetual and Periodic-Expanded

ACCT 320 TUTORIAL_Perpetual and Periodic-Expanded - ACCT...

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ACCT 320 TUTORIAL PERPETUAL AND PERIODIC INVENTORY SYSTEMS Overview: For many companies, inventory can represent the ability to make money in the future. Therefore, it is very important that large companies have a good system to track inventory. Companies need to be able to answer the following questions: 1. How much inventory did we purchase this year? 2. How much inventory did we sell this year? 3. How much inventory do we currently have on hand? Two systems of accounting for inventory are currently used: the perpetual system and the periodic system. The key difference between these two systems is the frequency with which companies update the inventory account. Under the perpetual system, the inventory account is updated constantly, after every transaction that involves inventory (e.g. purchases, returns, and sales). Under the periodic system, transactions involving inventory are recorded in temporary accounts, which only flow to the main inventory account when these accounts are closed at the end of the period. The perpetual system provides the benefit of an up-to-the-minute view of both inventory levels and the cost of goods sold. At any point during the period, if a manager needs to know how much inventory is on hand, he or she simply looks at the Inventory account. The cost of goods sold account will also provide a running total of the cost of all of the goods sold during the period. A disadvantage of the perpetual system is its high
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This note was uploaded on 11/22/2010 for the course SCM 310 taught by Professor Joe during the Spring '10 term at Kansas State University.

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ACCT 320 TUTORIAL_Perpetual and Periodic-Expanded - ACCT...

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