Inventory system

[Moe]

It is my understanding that Quick books uses the Perpetual inventory system but I was also told that you can use the periodic system but all items should be setup as non-inventory items.

Can someone explain to me the difference and which is better? How the P&L and the balance sheet would differ?

Thanks
Moe

[suzannemead]

Quickbooks only uses an averaging method on inventory. You can't change it.

[lisa_mn]

Perpetual keeps track of quantities purchased, sold and on hand on a perpetual basis. Think of it as being "real-time". At anytime, you can look at your balance sheet and (thereotically) see the value of your inventory on hand.

Periodic doesn't keep track as transactions happen. Instead, you make periodic adjustments based on sales or physical count. So until you make the adjustment, your inventory on your books is not correct.

Which is better depends on your situation. If you're buying and selling widgets, perpetual is pretty straightforward. But if you're buying stuff and turning it into other stuff or you purchase and sell in wierd quantities or just don't want to keep track of the detail, then periodic may be better.

[Tele Jr.]

You can rig it up to do periodic even though it isn't really intended to do so and also use inventory items.

I've found that smaller operators often wish to pass on the complexities of formally receiving purchases, especially when using QuickBooks Point of Sale, so there is definitely a call in the trade to implement this.

Just leave the item cost at zero and post all purchases straight to cost of goods sold, then do a periodic count and post an adjusting entry to adjust the inventory control account to reflect the actual value on hand vs cost of goods sold.

The key to getting it to work efficiently and effectively is if you can settle on a simplified set of assumptions regarding how you will count and value the inventory.

For example, a simple case of a hair salon that has shelves of bottles of hair care products that all cost almost the exact same thing. Settle on a set of assumptions based on the average cost per bottle and just count the number of bottles and it's done in a matter of minutes. At year end a little more diligence may be called for to get a better ending inventory number for the tax return but month to month many operators are very comfortable with doing it this way.

I wouldn't want to do it this way if the situation was too complex though.

Perpetual obviously gives you more accurate P&L and B/S numbers in real time assuming you post everthing timely, but are still only as accurate and up to date as you keep your system, even then you need to do periodic counts and do inventory adjustments or those numbers may not be as accurate as you expect.