How do periodic and perpetual inventory systems differ?

• A. Periodic updates at period end; perpetual updates with each sale or purchase.
• B. Periodic systems update in real time; perpetual do not track.
• C. Perpetual uses only manual counts; periodic uses automated counts.
• D. There is no difference.

Answer: (A)

The key idea is how and when inventory changes are recorded and how cost of goods sold is recognized. In a periodic system, the inventory account isn’t updated with every sale or purchase. Purchases are tracked in a purchases (or similar) account, and a physical count at the end of the period establishes ending inventory. From that, you compute COGS as beginning inventory plus purchases minus ending inventory. So the records aren’t kept current item-by-item.

In a perpetual system, every sale or purchase immediately updates the inventory balance and COGS in real time, keeping the books current after each transaction. Ongoing tracking like this generally reduces the need for large end-of-period physical counts, though periodic checks still occur to verify accuracy.

So the statement that periodic updates occur at period end and perpetual updates happen with each sale or purchase accurately describes the difference between the two methods.

The other options aren’t correct because they describe perpetual as not tracking or periodic as automated-only, or claim there’s no difference, which doesn’t reflect how these systems actually operate.