Question

1. What are the main differences between periodic and perpetual inventory methods? Which one do you think is easier to keep track of inventory and why?

Answer 1

In a perpetual inventory system, every time a shipment comes in or a product is sold, the inventory is updated. At any point in time, you can see the value and composition of inventory.

In a periodic inventory system, you do not track the inventory so closely on a day-to-day basis. You just, sell it (and receive shipments). At the end of the period (month, year, whatever), you go into the warehouse, count the inventory, value it, and then (and only then—a moment in time later, your snapshot is out-of-date), you know its value (and thus, the cost of everything you sold—the cost being, the opening inventory, plus purchases, minus the closing inventory you just counted and valued.

So if you are reasonably sized merchant. You should be using perpetual inventory because, in addition to having real-time value of inventory - which itself is fantastic - that's pretty much the only way you can know what your gross margins really are.