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Perpetual inventory system is the most commonly used amongst large retail stores such as Amazon. Perpetual inventory system records every inventory that is purchased and sold at that moment as well as calculated every business transaction.  Most large retailer companies used perpetual inventory because they can collect large amount of data to make this system possible.  Periodic inventory system is used amongst smaller retailer stores to track inventory. Periodic inventory system does not track or record inventory right away instead the total of inventory is calculated at the end of the period, which can be on a monthly basis.  

         One example of the perpetual inventory system is a company purchased $200 worth of ear buds, and each ear bud cost $50. The company sold two ear buds, which leave them with two set of ear buds. Each time the company sells an ear bud, the system calculated the sale and record how many ear buds were left.  In this case, the system automatically tracks how much inventory is on hand. On the other hand, if the company uses periodic inventory system, then they would have to perform a physical count of the inventory on hand. In this case, depending on the size of the company, some retailers might prefer perpetual inventory system because it tracks the inventory automatically. However, the disadvantage is that tracking inventory can be short because it does not consider stolen products.  Overall, depending on the size of the company and the cost of the product, most company might use wither perpetual or periodic inventory systems.

Reference:

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Financial accounting: Tools for business decision making (8th ed.). Retrieved from https://www.vitalsource.com

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A perpetual inventory system keep detailed records of the each inventory purchase and sale cost. The system shows the inventory on hand for each item. Similar to a boutique that keeps inventory of items such as shoes, shirts, and pants. When an item is bought like a pair of shoes, the inventory should show one less pair of shoes. The cost of goods sold each time a sale happens is also determine.

The systems do not keep detailed inventory records of goods on hand throughout the period. Costs of the goods are determined at the end of the accounting period periodically. At the beginning of the accounting period the cost of good is determine and then add to the cost of goods purchased. Subtraction the cost of goods on hand at the end of the accounting period.

Perpetual Inventory System

June 1  Purchase of Merchandise         on credit

Inventory                             2600

            Accounts Payable                 2600

June 5   Freight costs on purchases

Inventory                              300

     Cash                                    300

June 10 Purchase returns and allowances.

Accounts Payable                350

                   Inventory                          400

June 20 Payment on account with a discount.

Accounts Payable              3800

Cash                                       3720

Inventory                                 80

Periodic Inventory System

June 1  Purchase of Merchandise         on credit

Purchases                            2600

            Accounts Payable                 2600

June 5   Freight costs on purchases

Freight-in                              300

     Cash                                    300

June 10 Purchase returns and allowances.

Accounts Payable                350

                  Purchase Returns

                    and Allowances               350

June 20 Payment on account with a discount.

Accounts Payable              3800

Cash                                       3720

Purchase Discounts                 80

The systems use a daily log of items sold on as they are being sold. It’s typically used for stores those sales expensive items. Missing items will hurt the stores financially so it is important for them to track everything as they come in and as they go out.

Periodic systems are used typically for stores that sale cheap items such as the dollar stores. Keep track of cheap items would be too costly on a daily basis. Tally up everything at the end of the month is an easier way to keep track.