Question

What is the main difference between a perpetual inventory system and a periodic inventory system? Do you think one is preferential over the other? Explain.

Answer 1

The main difference between periodic and perpetual inventory system is that under periodic inventory system the inventory is counted for a specific period such as a week or a month while in perpetual inventory system the inventory is taken as and when movement of in inventory happens whether bought or sold.

Depending upon the volume of work, the cost of inventory , the size of the organisation , the preferbce for inventory system changes. Perpetual system is comparatively costlier than the periodic inventory system. Under perpetual inventory system , any discrepancy , theft or loss of inventory items acn be easily located while it is quite difficult in case of periodic inventory system. Also periodic inventory system requires stoppage of work during the counting while perpetual inventory system , since done continuously, work need not be stopped.

So perpetual inventory system can be preferred where inventory size and transactions in inventory is small, the inventory items are quite expensive or rare , there are cases of theft and discrepancy , the company has enough funds and system etc.