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Accounting Comparisons

Recall that under a perpetual system, the Merchandise Inventory account is updated after each purchase and each sale. The Cost of Goods Sold account is also updated after each sale so that during the period the account balance reflects the periods total cost of goods sold to date.Under a periodic inventory system, the Merchandise Inventory account is updated only once each accounting period. This update occurs at the end of the period. During the next period, the Merchandise Inventory balance remains unchanged. It reflects the beginning inventory balance until it is updated again at the end of the period. Similarly, in a periodic inventory system, cost of goods sold is not recorded as each sale occurs. Instead, the total cost of goods sold during the period is computed at the end of the period.