1. Operational Frameworks
Businesses use one of two primary tracking systems to monitor inventory balances:
+-------------------+---------------------------------------+------------------------------------------+
| Feature | Periodic Inventory System | Perpetual Inventory System |
+-------------------+---------------------------------------+------------------------------------------+
| Recording Timing | Inventory and COGS are not updated | Every purchase and sale is recorded |
| | continuously during the period. | immediately in the inventory system. |
+-------------------+---------------------------------------+------------------------------------------+
| Cost Tracking Account| Uses a temporary "Purchases" account | Updates the "Inventory" asset account |
| | to record inventory acquisitions. | directly with every transaction. |
+-------------------+---------------------------------------+------------------------------------------+
| Determination of | Determined only at period-end via a | Calculated automatically by the system |
| Closing Inventory | physical stock count. | at any point in time. |
+-------------------+---------------------------------------+------------------------------------------+
| Best Suited For | Small businesses with low-value, | Large retail environments (e.g., |
| | high-volume, diverse stock. | supermarkets using barcode scanners). |
+-------------------+---------------------------------------+------------------------------------------+
2. Calculating COGS in a Periodic System
Because a periodic system does not track daily stock movements, Cost of Goods Sold must be calculated using the standard inventory formula at the end of the period:
\(\text{COGS}=\text{Opening\ Stock}+\text{Purchases}-\text{Closing\ Stock\ (From\ physical\ count)}\)
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