Question

Why some firms might prefer a perpetual inventory system to a period inventory system? Explain with reference to academic source.

Answer 1

Answer:

Some firms might prefer a perpetual inventory system to a period inventory system due to the following limitation of period inventory system:

• Under the perpetual inventory system, all transactions are updated on a real-time basis instead of period inventory system where inventory is not updated on a real-time basis for determining the ending inventory, cost of goods sold, etc.
• The perpetual inventory system is recorded in the computerized system and due to which a large number of transactions can be updated on a real-time basis instead of period inventory system normally follows the manual recording of transactions.
• In the periodic inventory system cost of goods sold is determined by adding the beginning inventory with purchase & deducting the ending inventory, normally on a periodic basis due to which accurate cost of goods sold can not be determined while in perpetual inventory system it will be updated on every transaction with accuracy.
• In periodic inventory system transaction are not updated frequently due to which chances of fraud, stolen, etc will also arise but in perpetual inventory system it will be updated frequently & chances of misapprpriation etc. will be reduced to some extent & it can be easily traceble with available records.