The difference between the periodic and perpetual inventory systems involves the general ledger account Inventory.

In a periodic system the account Inventory will:

• have a constant balance (the ending balance from the previous period)
• not INCLUDE the cost of PURCHASES (they are recorded in a Purchases account)
• be adjusted at the end of the accounting period (so the balance reports the costs actually in inventory)
• require a physical inventory at least once per year (and estimates within the year)
• require a cost flow assumption (FIFO, LIFO, average)
• require a calculation of the cost of goods sold (to be used on the income STATEMENT)

In a perpetual system the account Inventory will:

• be debited when there is a purchase of goods (there is no Purchases account)
• be credited for the cost of the items sold (and the account Cost of Goods Sold will be debited)
• have its balance continuously or perpetually changing because of the above entries
• require a physical inventory to correct any errors in the Inventory account
• require a cost flow assumption (FIFO, LIFO, average)

It is possible that a COMPANY will USE the periodic system in its general ledger and use a different computer system outside of its general ledger to track the flow of goods in and out of inventory.

The difference between the periodic and perpetual inventory systems involves the general ledger account Inventory.

In a periodic system the account Inventory will:

In a perpetual system the account Inventory will:

It is possible that a company will use the periodic system in its general ledger and use a different computer system outside of its general ledger to track the flow of goods in and out of inventory.