Why is it important to periodically take a physical inventory when using a perpetual inventory system?...

Why is it important to periodically take a physical inventory when using a perpetual inventory system? Name a local company that you believe uses periodic inventory systems and a local company that you believe uses perpetual inventory systems. Explain your basis. need help with the questions to form a discussion for my accounting class

Expert Solution

Periodic Inventory System: When stock taking us done after a fixed interval of time, it is called as periodic inventory system. For eg. All capital goods industry like YAMUNA Power Infrastructure Ltd.

Perpetual Inventory System: When inventory taking is done on continuous basis as a part of business process, it is called perpetual inventory system. It is regular task. For eg All pharmaceutical companies like Mankind Group.

Importance of periodic inventory : Main points are:

1. Chances of loss of goods due to thefts/pilferage are reduced

2. Correct stocks are maintained.

3. Stock statements are to be furnished at various places like Banks. Periodic inventory helps to maintain correct figures of stocks.

4. Profits are correctly stated.

5. Comparisons between input, output and stock levels can be checked.

6. Costs can be reduced as stocks will be ordered at appropriate time and storage costs will fall.

Conclusion: The above list of benefits is not exhaustive but inclusive.

ekkarill92 answered 2 years ago

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