Periodic inventory and perpetual inventory are two methods of tracking inventory levels and determining the cost of goods sold. The main difference between these two methods is the frequency at which inventory levels are updated and the information that is available in real-time.

Periodic inventory is an accounting stock valuation practice that's performed at specified intervals. Businesses physically count their products at the end of the period and use the information to balance their general ledger.

Let’s take a look at how periodic inventory accounting would work:

Imagine at the beginning of January 2023, inventory opening stock value is RM50,000. Purchases during the month amounted to RM15,000, and at the end of the quarter, inventory was counted at RM40,000. We can calculate the cost of goods sold using this information.

January 2023
Opening Stock: RM 50,000

Purchases: RM 15,000
Closing stock: RM 40,000

Cost of good sold = Opening Stock + Purchases - Closing Stock

= RM 25,000.

Using this method, you just need to record a journal for the Closing stock and the end of the month.

Suitable For:

Best suited for smaller businesses that don't keep too much stock in their inventory. For such businesses, it's easy to perform a physical inventory count.

The perpetual system keeps track of inventory balances continuously, with updates made automatically when purchased or when sales are made. Under the perpetual inventory system, new units are added directly to the inventory account instead of a purchases account, and the cost of goods sold is calculated based on the inventory accounting method used, such as Average Cost, FIFO or LIFO.

For example, let's say you have 10 apples in stock and you sell 2 apples to a customer. The virtual assistant automatically updates the inventory levels to show that you now have 8 apples in stock.

Later in the day, you receive a shipment of 20 more apples from your supplier. The virtual assistant updates the inventory levels again to show that you now have 28 apples in stock.

In addition, the perpetual inventory system can calculate the cost of goods sold in real-time. This means that you always have up-to-date information about your business operations, which can help you make more informed decisions and run your business more efficiently.

Suitable For:

More suited to companies that have high sales volume or multiple retail locations because it is a timelier system. Perpetual inventory systems are helpful for those who always need to understand margins and profitability

The key difference between periodic and perpetual accounting is timing. Periodic inventory is done at the end of a period to create financial statements. Perpetual inventory is done as sales and inventory purchases happen.