Q1SE - Horngren'S Financial And Managerial Accounting

Question

Comparing periodic and perpetual inventory systems

For each statement below, identify whether the statement applies to the periodic inventory system, the perpetual inventory system, or both.

a. Normally used for relatively inexpensive goods. 

b. Keeps a running computerized record of merchandise inventory. 

c. Achieves better control over merchandise inventory. 

d. Requires a physical count of inventory to determine the quantities on hand. 

e. Uses bar codes to keep up-to-the-minute records of inventory.

Step-by-Step Solution

Answer

Answer

a.	Periodic inventory system
b.	Perpetual inventory system
c.	Perpetual inventory system
d.	Periodic inventory system
e.	Perpetual inventory system

Step 1: Meaning of Inventory Management System

A system that tracks the variations in the inventories of a business entity is known as an inventory management system. This system of the business entities facilitates them to track their inventories, re-order them timely, and valuation of the same for accurate reporting.

Step 2: Inexpensive goods

In accounting, inexpensive goods denote ordinary or cheap goods. Such kind of inventory is counted physically at the end of an accounting period, and companies prefer to use the periodic inventory system for the same.

Step 3: Recording of inventory on computer systems

The perpetual inventory system of accounting uses electronic mediums such as computers to track the inventory transactions of a business concern. It enables the companies to record the sale and purchase of inventories immediately.

Step 4: Better control over merchandise inventory

The perpetual inventory system controls inventory in a better way because it immediately records the changes in the merchandise inventories and does not require any physical investigation. The use of computers minimizes the chances of human errors and mistakes.

Step 5: Physical count of inventory

The periodic inventory system requires the physical count of inventory at the end of an accounting period because this inventory system tracks related transactions periodically and does not use electronic mediums. 

Step 6: Up-to-the-minute records of inventory

The perpetual inventory system records the inventory transactions on a real-time basis. Hence, it enables the business to draw up-to-the-minutes records of the inventories as and when required for re-ordering and re-checking purposes.