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I wish to know which Inventory system to adopt. My main problem is that my company is not able to record Cost of goods sold at the same time that the sale is recorded. Please advise? |
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One of the main criteria affecting the choice of an inventory system is that where at the time of sale, the cost of goods can be recorded simultaneously. Due to some reasons like lack of costing/manpower or automation, the cost of goods sold cannot be recorded together with the sale then the Periodic Inventory System is the preferred method over the perpetual inventory system.
Using the periodic inventory system, items like purchases, freight in, and purchases returns are all recorded in separate accounts.
Whereas:
In the case of perpetual system, everything is recorded in the Merchandise inventory account.
Side-by side Comparison of the Periodic and Perpetual Systems
(a) Bought 1,000 units at $1 each
(b) Pay cash for freights of $500 for delivery of purchases
(c) Obtain 1 % cash discount for early payment
(d) Sold 500 units for $2 each that cost us $1 each
Check out other related articles regarding this:
More on the differences between Periodic and Perpetual Inventory System
Perpetual inventory system and the types of physical stocktaking
Selection Of The Best Stock Valuation Method
Effects of Incorrect Stock Valuation On Profit for the current and subsequent periods
Effect of Stock Valuation On The Gross Margin, Net Income & Asset Valuation and Capital
Valuation of Stock at the lower of cost or net realizable value |