Question

1. What is the difference between periodic and perpetual inventory tracking? Are there cases where a health care organization could use both methods of inventory costing for different types of inventory, and if so, please explain why they would do this.

Answer 1

Difference between periodic & perpetual inventory tracking:

The periodic and perpetual inventory systems are different methods used to track the quantity of goods on hand. The more sophisticated of the two is the perpetual system, but it requires much more record keeping to maintain. The periodic systemrelies upon an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold, while the perpetual system keeps continual track of inventory balances. There are a number of other differences between the two systems, which are as follows:

Accounts: Under the perpetual system, there are continual updates to either the general ledger or inventory journal as inventory-related transactions occur. Conversely, under a periodic inventory system, there is no cost of goods sold account entry at all in an accounting period until such time as there is a physical count, which is then used to derive the cost of goods sold.

Computer systems: It is impossible to manually maintain the records for a perpetual inventory system, since there may be thousands of transactions at the unit level in every accounting period. Conversely, the simplicity of a periodic inventory system allows for the use of manual record keeping for very small inventories.

Cost of goods sold: Under the perpetual system, there are continual updates to the cost of goods sold account as each sale is made. Conversely, under the periodic inventory system, the cost of goods sold is calculated in a lump sum at the end of the reporting period, by adding total purchases to the beginning inventory and subtracting ending inventory. In the latter case, this means it can be difficult to obtain a precise cost of goods sold figure prior to the end of the reporting period.

Cycle counting: It is impossible to use cycle counting under a periodic inventory system, since there is no way to obtain accurate inventory counts in real time (which are used as a baseline for cycle counts).

Purchases:Under the perpetual system, inventory purchases are recorded in either the raw materials inventory account or merchandise account (depending on the nature of the purchase), while there is also a unit-count entry into the individual record that is kept for each inventory item. Conversely, under a periodic inventory system, all purchases are recorded into a purchases asset account, and there are no individual inventory records to which any unit-count information could be added.

Transaction investigations: It is nearly impossible to track through the accounting records under a periodic inventory system to determine why an inventory-related error of any kind occurred, since the information is aggregated at a very high level. Conversely, such investigations are much easier in a perpetual inventory system, where all transactions are available in detail at the individual unit level.

This list makes it clear that the perpetual inventory system is vastly superior to the periodic inventory system. The primary case where a periodic system might make sense is when the amount of inventory is very small, and where you can visually review it without any particular need for more detailed inventory records. The periodic system can also work well when the warehouse staff is poorly trained in the uses of a perpetual inventory system, since they might inadvertently record inventory transactions incorrectly in a perpetual system.

*** Methods used for inventory costing in health care organization:

keeping track of food inventory in hospital settings is vital to maintaining product quality and safety as well as to accurately determine inventory value. Controlling inventory will:

Reduce spoilage risks

Reduce the need for prolonged storage

Reduce over ordering

Reduce overall costs

Reduce possible theft

Physical inventory requires an actual periodic count, usually daily. Perishable foods can be kept on a physical inventory because they are generally consumed shortly after they are delivered to the food services team. Smaller hospitals and health care facilities can sometimes rely on a physical inventory alone if food turnover is rapid and smaller amounts of inventory are required. Perpetual inventories update inventory accounts after each order is placed. Inventory quantities are updated continuously with the use of software and must be kept up-to-date to coincide with physical inventories. Maintaining inventory perpetually allows discrepancies to be seen faster and prevents running out of essential items. If inventories don’t match between physical and perpetual inventories, a problem exists. It could be as simple as staff not recording waste as it occurs, or as serious as theft.

To set up a perpetual inventory, the foodservice staff first needs to complete a physical inventory. Then the data needs to be entered into a computer system. As deliveries are received, and meals are delivered to patients, the software will then track changes and update inventory. Keeping a good perpetual inventory will help prevent shortages and help maintain needed stock as well as keep track of trends of the types of foods patients are asking for and things that are going to waste.

****2 mainly Items for inventory tracking in healthcare are:

1)Surgecial equipment tracking: Surgical instruments represent a large investment for most healthcare organizations. Most people have some familiarity with the small, stainless steel surgical instruments found in dentists' offices, but some surgical instruments, especially those used in hospitals, can cost $50,000 to $100,000 or more. Because these instruments cannot easily get replaced due to prohibitive cost or availability, it makes sense for the healthcare organization to effectively manage this inventory. An effective inventory management system allows the healthcare organization to track the use and availability of these instruments.

2) Medical device tracking: Many healthcare organizations manage implantable devices such as aneurysm clips and cerebral spinal fluid shunts. These medical devices along with any other implantable medical device follow strict medical device manufacturing guidelines for documenting the device’s information and movement. Implantable medical devices all have a serial number. This serial number tracks the device's movements starting at the manufacturing plant to final implantation in a patient. An effective inventory control system allows a healthcare organization to determine exactly which implantable device was used on a specific patient for a specific operation