CFA Latest CFA Level 1 Discussions Perpetual vs periodic inventory system

Perpetual vs periodic inventory system

  • This topic has 9 replies, 3 voices, and was last updated Apr-17 by Snippy.
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    • lulu123
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      Could somebody clarify to me please what the effect on COGS and gross margin is for perpetual system vs. periodic system?

      I know under FIFO the two will have the same COGS and same GM.

      Under LIFO and weighted average, the system used makes a difference.

      What is the difference?

      Thanks!

    • Snippy
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      The difference for LIFO and weighted average is that:

      Under periodic, the quantity of inventory on hand is calculated periodically. The COG available for sale during the period is calculated as beginning inventory plus purchases over the period. The ending inventory amount is deducted from COG available for sale to get COGS.

      Under perpetual, changes in inventory account are updated continuously, i.e., purchases and sales are recorded in the inventory account as and when they occur.

      Also, whether periodic or perpetual, the rising prices rule still holds.

      Hope that helps.

    • lulu123
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      ok so regardless of periodic or perpetual, if I’m asked about impact on COGS and GM –> I only think about LIFO/FIFO/W.Avg logic?

      and periodic/perpetual is only recording differences? so at year-end they even out?

      amirite? @sidmenon

    • Snippy
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      Yeah the recording difference is the main thing. What are you referring to by the way, that evens out at year-end?

      But what i noticed while doing a sum of perpetual LIFO is that COGS was lower for perpetual than periodic LIFO and inventory for LIFO perpetual was higher than LIFO periodic.

      Usually, in questions, they would ask you to compare LIFO valuation with FIFO valuation, whether periodic or perpetual. So I don’t think they’ll ask us for differences between LIFO periodic and LIFO perpetual pertaining to COGS and inventory.

      I feel like I’ve confused you more.

    • lulu123
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      @sidmenon

      haha no you didn’t confuse me more!
      thanks

    • Snippy
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      No problem, @lulu123! 🙂

    • Sophie Macon
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      Way to go @sidmenon! Gosh I’ve been swamped and still up at this hour, only catching up with the posts now…

    • Snippy
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      @Sophie We are your minions! We do what you do when you no here 🙂

    • Sophie Macon
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      Minions like this @sidmenon? I love your voices then :))

    • Snippy
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      @Sophie I wish I could be as good a minion as these guys! 😛

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