Question

Discuss the advantages and disadvantages of the perpetual inventory system compared with a periodic inventory system.

Answer 1

Solution:

A perpectual inventory system can be defined as the maintenance of systematic inventory on a continous basis. It consists of maintaining a record for each type of material showing the quantities and value of materials received , issued and balance in stock.

Where as in periodic inventory system , Stock is verified at a time. Normally at the end of the accounting period for the preparation of financial statements.

Advantages of perectual inventory system:

1) Compaired with periodic inventory system, A real time update is possible in perpectual inventory system.

2) It is easy to access different locations easily.

3) It is a continous basis system, It helps in identifying the buying pattern of the customers.

4) Compaired to periodical system, It ensures faster way for the financial statements preparation

Disadvantages.:

1) Compaired with periodic inventory system, The technology is essential in perpectual inventory system. ie; it is very expensive.

2)It's hard to find errors.

3) Breakages and spoilages are not accounted in perpectual inventory system.