Perpetual Inventory System and Cost Flow Assumption

Question 1

What are the 2 main differences in accounting entries between the Periodic and Perpetual Inventory systems?

Answer 1

1) Use of Inventory account rather than Purchases under Perpetual system
2) Recording of COGS at sale rather than period end under Perpetual system

Question 2

What’s the difference in cost flow assumption in calculating COGS between the Periodic and Perpetual Inventory systems?

Answer 2

-Perpetual system considers only goods on hand when computing COGS after sale while Periodic system considers all goods on hand during period when COGS calculated at period end

Question 3

What happens when using a moving average under the Perpetual Inventory System?

Answer 3

-Company computes a new weighted average cost per unit after each purchase of inventory