Inventory System Summary Essay Example | Topics and Well Written Essays - 750 words

Inventory System Summary - Essay Example This paper aims to discuss periodic inventory systems and its advantages and disadvantages. A periodic inventory system is a system where data is entered after a specific duration of time (Wensing, 2011). It is here where the term periodic is derived. Data is updated after a specific period, in the inventory systems, unlike in perpetual inventory systems where data is entered as sales are made. Information for this system is not kept up to date. While information for the inventory is noted, total and permanent storage of this data is only entered once a year. Under this inventory system, the amount recorded, in the account for inventory, is not updated after sales of goods or services are made (Wensing, 2011). The inventory account is updated once or adjusted one time usually per annum. During the current year, the inventory will only show the previous year’s end cost of inventory. Under this system, service and merchandise purchase is made, in either one or more than one purchase accounts. There is closure of purchase accounts and adjustment of the inventory account to equal the services and merchandise that is, in hand at that time, at the end of the year. This system has no cost of goods or services sold account for updating after a sale (Wensing, 2011). Periodic inventories utilize simple modes of calculation, in order to maintain an account for inventory, in the general ledger (Wensing, 2011). Materials and services purchased are entered, in a purchase account. A single entry is made moving to COGS sold material, at the end of a period of accounting. A periodic inventory only requires the total purchases and total sales entered on a monthly basis. There is no need for inventory count accounting records since the maintenance of the inventory is done through the entry of journals, in the general ledger (Wensing, 2011). The only records that are kept physically are derived from the