AC 210 Lecture Notes - Lecture 40: Matching Principle, Accounts Payable, Accounts Receivable
5 Jun 2018
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Inventory Systems: Perpetual or Periodic
Companies may use either the perpetual system or the periodic system to account for
inventory. Under the periodic system, merchandise purchases are recorded in the
purchases account, and the inventory account balance is updated only at the end of
each accounting period. Perpetual inventory systems have traditionally been associated
with companies that sell small numbers of high‐priced items, but the development of
modern scanning and computer technology has enabled almost any type of
merchandiser to consider using this system.
Under the perpetual system, purchases, purchase returns and allowances, purchase
discounts, sales, and sales returns are immediately recognized in the inventory account,
so the inventory account balance should always remain accurate, assuming there is no
theft, spoilage, or other losses. Consider several entries under both systems. The
reference columns are removed from the illustration to simplify what you're seeing.
(Note: Ap stands for accounts payable, and AR stands for accounts receivable.)
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