Difference Between Perpetual And Periodic

The material is an integral part of the production cost, as it is composed of 80% of the total product cost. So every manufacturing business keeps a track of its inventory purchased, returned and issued during the twelvemonth, through the inventory tape system. The inventory system is of ii types: Perpetual Inventory Arrangement, in which the move of the stock is recorded continuously and Periodic Inventory System, which updates the inventory records from time to time just after the physical count of the stock.

Inventory management system should exist past the shop'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, nosotros provide you all the of import differences between the Perpetual and Periodic Inventory organization, in tabular form.

Content: Perpetual Inventory Organization Vs Periodic Inventory System

Comparing Chart
Definition
Key Differences
Conclusion

Comparison Chart

Footing for Comparing	Perpetual Inventory System	Periodic Inventory Organisation
Pregnant	The inventory system which traces every single movement of inventory, as and when they ascend is known every bit Perpetual Inventory System.	The Periodic Inventory Organization is an inventory tape method whereby, the inventory records are updated at periodic intervals.
Footing	Book Records	Physical Verification
Updations	Continuously	At the terminate of the accounting period.
Data about	Inventory and Toll of sales	Inventory and Cost of goods sold
Balancing Figure	Inventory	Cost of Goods Sold
Possibility of Inventory Control	Yes	No
Touch on business concern operation	This method does not influence the concern operation.	Under this system, the business organisation operations demand to exist stopped during valuation.

Definition of Perpetual Inventory Arrangement

The inventory command method in which every inflow and outflow of stock are constantly updated, through an electronic indicate of auction system, is known as Perpetual Inventory System. The records maintained nether this organization are e'er up to date. In this system an inventory ledger is maintained to go along consummate and continuous record of the receipts and issue of inventory in which the closing balance is the inventory in hand. The adding of closing inventory can be done every bit under:

Inventory at the First + Receipts – Problems = Inventory at the finish

The inventory records are kept in Bin Carte du jour (Stores Keeper) and Stores Ledger (Cost Accounting Department). To ensure accuracy, physical verification of stock takes identify 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 hands located, and corrective deportment can also be taken immediately. Although the arrangement is costly and complicated.

Definition of Periodic Inventory System

The inventory record organization in which the movement of inventory is captured at a regular interval, say once or twice in a year, merely later on taking concrete verification of stock is known as Periodic Inventory System. Ordinarily, at the end of the financial year, the concrete count of stock takes place after which the records are adjusted and updated accordingly. The post-obit formula is used to track the cost of appurtenances sold during the year:

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

At that place are diverse shortcomings of this system equally the amount of the price of appurtenances sold may include the goods lost or theft during the yr. Even so, with the help of sales revenue, an interpretation could be made regarding the lost inventory but this figure is not accurate. If the concrete valuation of the stock is done more than once in a yr, then this organization can also cost higher. Discrepancies tin can be detected only at the terminate of the accounting catamenia.

Key Differences Between Perpetual and Periodic Inventory Arrangement

The post-obit are the major differences between perpetual and periodic inventory system:

The inventory system in which in that location is real time recording of the receipts and issues of inventory is known every bit Perpetual Inventory System. Periodic Inventory System tracks the details of inventory movement at periodic intervals.
The Perpetual Inventory System is based on book records while Periodic Inventory System, takes physical verification every bit its base.
In Perpetual Inventory Organisation the records are updated continuously, i.e. equally the stock transaction takes identify. Conversely, in Periodic Inventory System the records are updated after a short duration.
In Perpetual Inventory System, real-fourth dimension information about Inventory and Cost of sales is provided whereas the Periodic Inventory System provides data about Inventory and Price of goods sold.
In Perpetual Inventory Arrangement, the loss of goods is included in closing inventory. Conversely, in Periodic Inventory Arrangement the same is included in Cost of Goods Sold.
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 concern operations may have to be stopped.

Conclusion

The Periodic Inventory System is less costly than the Perpetual Inventory System, but it gives more authentic information because ongoing recording and timely verification of inventory are done. In addition to this, the financial statements are too prepared quickly every bit the inventory records are maintained properly in the Perpetual Inventory Organisation, which is non possible in instance of Periodic Inventory System. The Perpetual Inventory System is all-time suited for large enterprises while small businesses can go for Periodic Inventory System