Perpetual or a periodic inventory system system to follow?

Perpetual or a periodic inventory system system to follow?

Under the periodic method the amount of inventory is determined periodically (normally annually) by conducting a physical count and multiplying the number of units by a cost per unit to value the inventory on hand. This amount is then recognised as a current asset. This balance remains unchanged until the next count is taken.

Under the perpetual method inventory records are updated each time a transaction involving inventory takes place. Thus, at any one time, information about the quantity and cost of inventory on hand will be available enabling the enterprise to provide better customer service and to maintain better control over this essential asset.

Obviously, this system is more complicated and expensive than the periodic method, but with the advent of user-friendly, PC-based computerized accounting packages and point of sale machines which link directly to accounting records most businesses today use the perpetual method.