Which of the following is a true statement about inventory systems?
a.Periodic inventory systems require more detailed inventory records.
b.Perpetual inventory systems require more detailed inventory records.
c.A periodic system requires cost of goods sold be determined after each sale.
d.A perpetual system determines cost of goods sold only at the end of the accounting period.
The correct answer and explanation is :
Correct Answer:
b. Perpetual inventory systems require more detailed inventory records.
Explanation:
Inventory systems are crucial for businesses to track and manage their stock efficiently. There are two main types of inventory systems: perpetual and periodic.
- Perpetual Inventory System:
- This system continuously updates inventory records in real-time whenever a purchase or sale occurs.
- It requires detailed inventory records to track each transaction.
- Businesses using this system can instantly determine the quantity and cost of goods sold (COGS) after each sale.
- It typically integrates with point-of-sale (POS) systems and enterprise resource planning (ERP) software.
- Used mainly by retail stores, e-commerce businesses, and large-scale operations.
- Periodic Inventory System:
- Unlike the perpetual system, this system does not track inventory in real-time.
- Inventory counts and COGS are determined at the end of an accounting period (monthly, quarterly, or annually).
- Businesses physically count inventory and update records accordingly.
- Requires less detailed record-keeping than a perpetual system.
- Suitable for small businesses or those with inexpensive inventory items.
Why Option B is Correct:
- Perpetual inventory systems need more detailed records because they track inventory continuously.
- Periodic systems only update inventory at intervals and require less detailed tracking.
- Option A is incorrect because periodic systems require fewer records than perpetual ones.
- Option C is incorrect since periodic systems determine COGS at the end of the period, not after each sale.
- Option D is incorrect as perpetual systems track COGS after every sale, not just at the end of an accounting period.
Thus, the perpetual inventory system requires more detailed inventory records to keep real-time stock levels accurate.
Here is an infographic comparing Perpetual and Periodic Inventory Systems, highlighting their key differences.