Which of the following best describes the primary difference between a periodic inventory system and a perpetual inventory system?

• A. A periodic inventory system records inventory at market value, while a perpetual inventory system records inventory at historical cost.
• B. A perpetual inventory system continuously updates inventory records and cost of goods sold after each purchase or sale, while a periodic inventory system updates these records only at the end of the accounting period.
• C. A perpetual inventory system only applies to service companies, whereas a periodic inventory system is used by merchandising companies.
• D. A periodic inventory system requires the use of barcodes and scanners for every transaction, while a perpetual inventory system does not.

Answer: (B)

Verified step by step guidance

1. Understand the key concepts: A periodic inventory system and a perpetual inventory system are two methods used to track inventory and cost of goods sold (COGS). The primary difference lies in how and when inventory records are updated.
2. In a periodic inventory system, inventory and COGS are updated only at the end of the accounting period. This system relies on a physical count of inventory to determine the ending inventory balance and calculate COGS.
3. In a perpetual inventory system, inventory and COGS are updated continuously in real-time after each purchase or sale. This system often uses technology like barcodes and scanners to track inventory movements.
4. Analyze the provided options: Eliminate incorrect statements. For example, the claim that a periodic system requires barcodes and scanners is incorrect, as this is more characteristic of a perpetual system. Similarly, the claim that a perpetual system applies only to service companies is incorrect, as it is widely used by merchandising and manufacturing companies.
5. Select the correct answer: The correct description is that a perpetual inventory system continuously updates inventory records and COGS after each transaction, while a periodic inventory system updates these records only at the end of the accounting period.