Question

Nhat are the differences between Periodic and Perpetual Inventory When Sales Taxes are collected by the seller, who's revenue is it? Name 1:er

Answer 1

COMPARISON PERPETUAL INVENTORY SYSTEM PERIODIC INVENTORIES

1. Meaning

Periodic inventory system is a system of inventory accounting in which position of stock in hand and cost of goods sold is determined by physical counting.

Perpetual inventory system is a system of inventory accounting in which real time tracking of inventory movements is done.

2. Status of accounts updation

In periodic inventory system, inventory accounts do not reflect accurate picture at all times. The correct inventory position is only updated in accounts at the time of physical counting.

In perpetual inventory system, inventory accounts are updated on a real time basis.

3. Need for systems

Periodic inventory system can be maintained manually as it requires updation only at the time of physical counting.

Perpetual inventory system requires use of computer systems to keep real time track of inventory purchases and sales.

4. Determination of cost of goods sold

In periodic inventory system cost of goods sold is determined only at the end of specific period on the basis of mathematical formula.

In perpetual inventory system, cost of goods sold can be determined at any time on the basis of real time records maintained in the system.

5. Cost involved

Periodic inventory system is simpler and involves lower cost.

Perpetual inventory system is more complex and requires maintenance of complex systems for real time tracking. It thus involves higher cost.

6. Accuracy and reliability

Periodic inventory system is less reliable as it cannot determine inventory balance or cost of goods sold at all times. The system also does not account for inventory obsolescence or inventory losses other than at the time of physical counting and is thus less accurate.

Perpetual inventory system is more accurate and reliable as it accounts for inventory movements continuously as and when they occur.

7. Preferred by

Periodic inventory system is preferred by smaller enterprises with lower sales volume and where physical counting of inventory is more feasible.

Perpetual inventory system is preferred by larger enterprises with high sales volume where accurate and real time information of inventory is required.

8. Effect on business functioning

Periodic inventory system requires closure of business activities at the time of physical counting of inventory to get accurate result.

Perpetual inventory system does not impact business function or require closure as inventory balances are updated continuously along with regular business operations.

Sales tax are imposed by government so this income of government .this not a income of selling. Seller is just a person who collect from buyer and pay to government.