Accounting for perpetual inventory system has various advantages and disadvantages. In terms of advantages, it allows for accurate restocking since all changes in inventory levels recording follows the real time. Ideally, this means that the recording occurs both when the inventory is purchased and sold. In so doing, it allows one to have the ability have accurate information thus able to identify inventory items that are running out of stock (Epstein, 2011).
In addition, it helps in provision of accurate interim financial statements. In most cases, the inventory under the periodic inventory system in both cost-of goods sold account and inventory account remain incorrect throughout the year. However, the perpetual system usually corrects those accounts thus making the financial statements accurate through the year. Besides, the accounting for perpetual inventory system enhances close management of inventory levels. Ideally, this is because the accounting ensures that the inventory levels remain correct throughout hence calculation of inventory turnover ratio become easy to calculated.
On the other hand, perpetual inventory accounting may be subject various disadvantages. First, the process of accounting for this system may turn to be time-consuming. Ideally, this is because the accounts will need to reconcile the accounts of general ledger from time to time. Errors associated with the reconciliation will always recur making the process tedious (Eisen, 2000).
In addition, the recording of inventory in perpetual inventory system takes place as soon as the transactions take place. However, this may be disadvantageous because the recording may not reflect the actual inventory as time goes on. Ideally, this is because the system does not use physical inventory counts thus any mistakes made lead to mismatch with the actual inventory.
References
Epstein, M. (2011). Advances in management accounting. Bingley, UK: Emerald.
Eisen, P. (2000). Accounting (4th ed.). Hauppauge, N.Y.: Barron's Educational Series.
