Understand Inventory Control Methods
PowerPoint #2
Perpetual Inventory System
Inventory is continuously updated.
Used by a majority of businesses
When new merchandise is purchased, the Inventory
Account ,not the Purchases Account, is immediately
debited.
There are two journal entries when goods are sold:
 The items are immediately removed from the Inventory
Account and placed in the Cost of Good Sold Account.
 The sale is credited to Sales and debited to Cash or Accounts
Receivable.
A stock record is used to show the type of merchandise,
quantity received, quantity sold, and balance on hand.
Periodic Inventory System
Also called a physical inventory
Determined by physically counting, weighing, or
measuring items or merchandise on hand
As inventory is purchased, it is debited to the
Purchases account.
 Purchases account is shown in the Cost of Goods Sold
section
 Purchases account is closed to the Inventory Account
at the end of the year.
When merchandise is sold to customers
 There is only one journal entry.
 Debit Cash or Accounts Receivable and Credit Sales.
 No adjustment to Inventory or Cost of Goods Sold is
needed.
 The adjustment will be made at the end of the year.
Inventory Records are used to record information
for Periodic Inventories.
Periodic Inventories are expensive to conduct,
especially for businesses with large inventories.
Companies that use the Perpetual Inventory system
take a Physical Inventory as least once per year.
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Explain the concept of a Perpetual Inventory
system.
Explain the concept of a Periodic Inventory
system.
How does the Perpetual Inventory system
differ from the Periodic Inventory system?
How are the two systems similar?
Why is a Periodic or Physical Inventory
necessary, even for Perpetual systems?