Principles of Accounting
Accounting for a Merchandising Company
There are two systems to account for inventory: the perpetual system and the periodic system. With the perpetual system, the inventory account is updated after every inventory purchase or sale. Before computers became widely available, only companies that sold a relatively small number of high-priced items used this system. Under the periodic system, a careful evaluation of inventory occurs only at the end of each accounting period. At that time, each product available for sale is counted and multiplied by its per unit cost, and the total of all such calculations equals the value of inventory.
