How to Compare a Continuous Inventory System & a Periodic Inventory System

For many businesses, inventory is the second-largest expense in their company. Business owners and managers will typically implement an accounting inventory system to help them manage their various products. The two most common systems are perpetual and periodic.

Defined

A perpetual inventory system is a continuous inventory method in which companies track their inventory on a daily basis. Periodic systems are quite different. This system only updates inventory balances on a monthly or quarterly basis, depending on the size of the company.

Features

Under a perpetual system, companies will update their inventory account after each purchase, sale or adjustment of inventory items. This creates an accurate accounting balance for inventory. Periodic systems will start with an opening inventory amount and update the account by entering a total for sales, cost of goods sold and adjustments at month end.

Comparison

Perpetual systems will take more time and require business owners and managers to complete more back office tasks. Periodic systems are easier on the accounting side but may require more physical counts to verify the existence of actual products when compared to the general ledger.

References

• Accounting Info: Perpetual vs. Periodic Inventory System
• CliffsNotes: Inventory Systems: Perpetual or Periodic