Wendell Vincent R.

Panis III

Activity #6

Instruction: Write 300 words reaction paper about your insights about Physical and Perpetual Inventory
Guide question
 What is the difference between perpetual and physical inventory?
- Items that are added to or removed from the inventory are tracked and recorded continually by
perpetual inventory. Additionally, it records the price of the products that are bought and sold. To
manually count and record products and keep track of the cost of what is bought and sold, physical
inventories are conducted on a regular timetable.

The use of wireless barcode scanners in a grocery shop is the most typical example of a perpetual
inventory system. It promptly logs all scanned transactions as they happen onto the system. Firms may
readily calculate the present and necessary stockpile in this method. A real count of the stock of items
is called a physical inventory. In addition to requesting third parties for counts of inventory goods that
have been consigned to them, this may entail counting, weighing, and other types of measurement of
the products.

In business and accounting/accountancy, perpetual inventory system or continuous inventory

system describes systems of inventory where information on inventory quantity and availability is
updated on a continuous/real-time basis as a function of doing business.
n a perpetual inventory system, there are three main methods you can choose from to account for
inventory: FIFO, LIFO, and the average method.
1.  FIFO
FIFO stands for First-In-First-Out, and it’s based on the assumption that the first merchandise bought
is the first one sold.
To better visualize this method, you can think of FIFO as a queue. The first person that’s queued, is
also the first person to go out.
2.  LIFO
The LIFO method, or Last-In-First-Out method, assumes that the most recently purchased merchandise
is sold first.
A better way to visualize LIFO is by imagining a stack of plates. The first plate (the one you placed at
the bottom), will be the last one to go out because you’ll first have to remove all the plates that were
placed on top of it.
3.  Weighted Average Method
The weighted average method, also known as the average-cost method, calculates the cost of
merchandise based on the average cost of all units.
The average cost is computed by dividing the total cost of inventory available by the number of units.

 What are the advantages and disadvantages of perpetual and physical inventory?
- The advantages of a perpetual inventory system are real-time updates, more exact forecasts, etc.
You must be aware of the disadvantages that this method also contains. A perpetual inventory system
has drawbacks such as lost items, scan errors, theft, hacking, etc. The advantages of the periodic
inventory system are relatively cheap cost and simplicity. The disadvantages of periodic inventory
systems are the slow process and less fidelity in inventory updating. This system is better suited for
small businesses with fewer goods or slow-moving goods with less variety.
Advantages of the Perpetual Inventory System Prevents stock outs; a stock out means that a product
is out of stock. Gives business owners a more accurate understanding of customer preferences. Allows
business owners to centralize the inventory management system for multiple locations.

The physical inventory system involves a person manually maintaining and updating each record,
increasing the risk of human error. Furthermore, this system is also susceptible to data loss because
inventory sheets can get torn up over time, lost, or replaced.
The first disadvantage is the vulnerability to loss of items. This system does have a function to ensure
quick and easy inventory recording. However, the absence of physical checks in this system has the
potential for the loss of goods and can result in company losses.
Wendell Vincent R. Panis III

One disadvantage of a perpetual inventory system involves the setup cost. Most systems require the
purchase of new equipment and inventory software. This equipment includes point of sale scanners
which read the bar code of each item. Scanners are also required when items are received into
inventory.

Needs
Outstanding Satisfactory Unsatisfactory
Criteria Improvement
(5 points) (4 points) (2 points)
(3 points)
Content &  Content is  Content is  Content is not  Content is
Development comprehensive, accurate and comprehensive incomplete.
accurate, and persuasive. and /or  Major points
persuasive.  Major points are persuasive. are not clear.
 Major points are stated.  Major points are  Specific
stated clearly and  Responses are addressed, but not examples are
are well supported. adequate and well supported. not used.
 Responses are address topic.  Responses are
excellent, timely and  Content is clear. inadequate or do
address topic.  Specific not address topic.
 Content is clear. examples are  Specific examples
 Specific examples used. do not support
are used. topic.
Organizatio  Structure of the  Structure is  Structure of the  Organization
n & paper is clear and mostly clear and paper is not easy and structure
Structure easy to follow. easy to follow. to follow. detract from
 Transitions are  Transitions are  Transitions need the message.
logical and maintain present. improvement.  Writing is
the flow of thought  Conclusion is  Conclusion is disjointed and
throughout the logical. missing, or if lacks transition
paper. provided, does not of thoughts.
 Conclusion is logical flow from the
and flows from the body of the paper.
body of the paper.
Grammar,  Rules of grammar,  Rules of  Paper contains few  Paper contains
Punctuation usage, and grammar, usage, grammatical, numerous
& Spelling punctuation are and punctuation punctuation and grammatical,
followed; spelling is are followed spelling errors. punctuation,
correct. with minor and spelling
errors. errors.
Spelling is
correct.

Total Score