Types of Inventory Control 
   Systems - Perpetual
    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.
  Types of Inventory Control 
  Systems - Periodic
   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.
   Types of Inventory Control 
   Systems – Periodic (cont’d)
     
      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.
    Questions for 
    Understanding/Discussion
     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?