Difference Between Perpetual And Periodic Inventory

Difference Between Perpetual Inventory And Periodic Inventory

The main dissimilarities or difference between perpetual and periodic inventory system can be highlighted as follows:

1. Introduction

Perpetual Inventory: It is a method of tracking, recording and updating the movement of inventory regularly after each transaction.

Periodic Inventory: It is a method of tracking and measuring the stock occasionally or periodically.

2. What Is It?

Perpetual Inventory: It is a real-time or continuous counting of stock.

Periodic Inventory: It is a time to time or occasional counting of stock.

3. Cost And Time Required

Perpetual Inventory: It requires more cost and more time because of more and regular record keeping.

Periodic Inventory: It requires less cost and time to maintain inventory record.

4. Suitability

Perpetual Inventory: This method is suitable for large firms with high volume of business transactions.

Periodic Inventory: This method is suitable for new and small firms with less volume of business transactions.

5. Closing Entries

Perpetual Inventory: Not required because of up to date record

Periodic Inventory: Required to obtain the cost of goods sold

6. Based On

Perpetual Inventory: Individual transaction (purchase, purchase return, sales etc.)

Periodic Inventory: Lump sum ( total purchase, total sales etc.)

7. Type Of Data Obtained

Perpetual Inventory: Real-time

Periodic Inventory: Retrospect

8. Inventory Control

Perpetual Inventory: It is easy to control inventory because of regular update

Periodic Inventory: It is very difficult to control inventory because it lacks regular recording and updating.

9. Preparation Of Temporary Accounts

Perpetual Inventory: No need to prepare temporary accounts.

Periodic Inventory: Temporary accounts such as purchase account, purchase return account, sales account etc. should be maintained.

Perpetual Inventory Vs Periodic Inventory (Comparison Chart)

Basis	Perpetual Inventory	Periodic Inventory
Introduction	Regular tracking,and updating of inventory movement	Periodically updating the movement of inventory
It Is	Real time counting	Occasional counting
Cost/Time	More	Less
Suitable For	Large firms	Small firms
Closing Entries	Not required	Required
Based On	Each transaction	Lump sum
Data Obtained	Real time data	Retrospect
Control	Easy	Difficult
Temporary Accounts	Not needed	Needed

I hope this post is helpful to understand the difference between perpetual and periodic inventory system and to make comparison between them.