Before getting ready to sell goods, every entrepreneur should decide for himself what system of inventory his business will be using. Companies may use either the perpetual system or the periodic system to account for inventory.
The choice of the system should be fixed in the company’s accounting policy. Workflow organization, content and frequency of various internal reports, selection of accounting and inventory management software - it all depends on this significant choice.
Periodic inventory system keeps the inventory balance at the same value that it was at the beginning of the accounting period. At the end of period, the inventory balance is adjusted to a physical count.
Under the periodic system, merchandise purchases are recorded in the purchases account, and the inventory account balance is updated only at the end of each accounting period. Thus cost of goods sold account does not exist during the accounting period. The...