So the topic of inventory interests you. Great you have came to the right place. Today we will learn about the difference between the two main inventory systems.
The two main types of inventory accounting are:
Periodic Inventory System
Companies physically count the inventory on hand and update it only once a year. Due to this the inventory account will only show how much inventory cost at the end of the prior year. Companies who use the periodic inventory system will not be able to look at the general ledger and see how much inventory is on hand or how much cost of goods sold is.
Perpetual Inventory System
Companies who have a perpetual inventory system will continually update inventory kept on hand as it is bought or sold. They also update it when items are moved to a different location or are discarded. By keeping track of inventory and costs after each transaction made, whether it was a purchase for more inventory or a sale of the inventory to customers, the company will be able to look at the the general ledger to see how much inventory is on hand and how much cost of goods sold is. When customers by inventory items the company needs to make two journal entries to reflect this. The first journal entry will show the actual sale and the second one will be to update the inventory count.