To stay competitive in this technically advanced era, every organization needs to impart an apt inventory system to administer the materials traveling inside and outside their log yard. It may also assist an organization to increment the level of profits by periodically tracking the purchase, sale and the products. Let us discuss the case of organization A, a newsprint factory located in India that adopted a perpetual inventory system to track the records and leaped huge profit in the past few years.
The company employed computerized inventory software to perform the valuation. Researches conducted on inventory savings through 2003 to 2007 indicated $8100, $8353, $9302 and $9724. This shows a tremendous increase in yearly profit. With a team work, we have compared the two main inventory systems popularly known as perpetual and periodic systems. The two different systems carry basic variation in executing the accounting process with organizational transactions.
To build up purchase documentation, a perpetual inventory method deals with the merchandise account whereas the periodic method debits the purchase credit. While dealing with sales recording, a periodic method necessitates an additional entry so as to debit the goods selling cost and to credit the retail inventory. Both the system holds individual advantageous. However, technological level incorporated in an organization is a key factor that determines the idle inventory system.
As the organization A holds the capacity to document real time transactions, a perpetual inventory method was the best option. This system helps to record the sales instantly as the account vary perpetually. The periodic method possesses combined sales information till the period winds up and is transferred to the account on a monthly or yearly basis as chosen by the company.
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