Course Outline
Join PRO

What is the difference between periodic and perpetual inventory systems?

Author:
Harold Averkamp, CPA, MBA

Periodic Inventory System

In a periodic system the account Inventory:

  • Has only the ending balance from the previous accounting year
  • Excludes the cost of purchases, purchases returns and allowances, etc. since these are recorded in accounts such as Purchases, Purchases Returns and Allowances, Purchases Discounts, etc.
  • Must be adjusted at the end of the accounting year in order to report the costs actually in inventory
  • Requires a physical inventory at least once per year and estimates within the year
  • Requires a cost flow assumption (FIFO, LIFO, average)

The periodic inventory system requires a calculation to determine the cost of goods sold.

Perpetual Inventory System

In a perpetual system the account Inventory:

  • Is debited whenever there is a purchase of goods (there is no Purchases account)
  • Is credited for the cost of the items sold (and the account Cost of Goods Sold is debited
  • Has a continuously or perpetually changing balance because of the above entries
  • Requires a physical inventory to correct any errors in the Inventory account
  • Requires a cost flow assumption (FIFO, LIFO, average)

With the perpetual inventory system, the cost of goods sold is readily available in the account Cost of Goods Sold.

[It is possible that a company uses the periodic system in its general ledger, but uses a different computer system outside of its general ledger to track the flow of goods in and out of inventory.]

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus