Perpetual and Periodic Inventory
Understanding the difference between perpetual and periodic inventory is important. As the image shows, the Income Statement appears different for the two methods.
Periodic inventory systems are based on a more old fashioned system where inventory counting and valuation comes from stock-takes. So inventory is physically counted in this system.
Inventory movements are routinely recorded in a perpetual inventory system. This happens as sale and purchase transactions occur. The inventory balance is then more accurate.
In summary, a running balance of cost of good sold is available for reports and decision making.
Because of this, modern computer accounting systems use a perpetual inventory system.
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