What to Choose – a Periodic or Perpetual Inventory System

Inventory management in any business covers the usage of an inventory system that aids in the recording of information for management and financial reports. When it comes to sales, most businesses follow the POS System that generates up-to-date recording of sales and goods sold.

There are two options a company can follow when it comes to inventory systems that effectively track inventory of the business. They are the periodic and perpetual inventory systems which will be discussed further in the following information to aid you in choosing the most suitable inventory system for your business.

Periodic Inventory System

A periodic inventory system is a type of inventory system where a physical inventory count is done periodically as set by the business. The periodic inventory count is the amount or the quantity written on the balance sheet on the inventory section for that specific period.

To compute the cost of goods sold, the ending inventory, the result of the physical inventory count, is subtracted from the sum of the beginning inventory and the purchases within the period as presented on the sample inventory of this website.

Perpetual Inventory System

On the other hand, a perpetual inventory system is a type of inventory system in which the inventory information is updated continuously in the duration of the business operations.

When a sale transaction occurs, there is a record of the good that is sold which decreases the ending inventory. Most of the time, the book inventory results in almost the same inventory count in actual. The sample inventory templates in DOC show various samples regarding the format for the inventory sheet used to execute this type of system.

Most businesses currently follow the perpetual inventory system which helps greatly in the making of accurate financial reports. But you can incorporate the two systems to make sure that your business’s inventory is well accounted for.

Points to Consider in Choosing an Inventory System

There are different factors management must consider before deciding what inventory system to follow. The following are the key points to consider in choosing for an inventory system for your business:

  • Nature of Business – For business industries dealing with products, it is essential to have an inventory system to use in managing the inventory. Meanwhile, for business industries dealing with services, there are only a few of these companies that deal with inventory like food and hospitality businesses that do need an inventory system.
  • Size of the Business – Small business can be managed with simple accounting procedures which entail the use of a periodic inventory system which is less difficult to use. In contrast, a perpetual inventory system must be followed by large businesses since it allows you to balance inventory account at any time.
  • Business’s Investments – A business with more money to invest should keep track of his inventory which makes it preferable for the business to follow the perpetual inventory system with the format shown on the sample inventory templates in Excel.

Choosing between a periodic and a perpetual inventory system requires the need for an in depth study of the business for the business to find the most suitable inventory system to follow. Once you have decided, there are free inventory templates you can use to aid you in executing the chosen inventory system.

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