Inventory transactions can be recorded using the periodic inventory method or the perpetual inventory method. Recording inventory is detailed business. The accounting department must choose a method and keep it consistent throughout the books.
Because these two methods vary in their way of tracking inventory data, the calculations of inventory and cost of goods sold amount can be different depending on the method used.
The cost of goods used in manufacture or sale is calculated and recorded at the end of each accounting period. The accountant must add the cost of goods purchased to the value of inventory at the beginning of the period and then deduct the final value of inventory at the end of the period.
Fewer details are required with this method. It is only necessary to record purchases and values at the beginning and end of the accounting period.
The cost of goods used is calculated and recorded constantly as inventory is used. A separate account must be kept for each inventory items. Unlike with periodic inventory, when inventory items are obtained or sold, the quantities and costs of the units must be noted on the account.