Inventory Management: The Book Nook

COLLAPSE

Merchandisers can chose between two inventory systemsperpetual or periodic. These systems set forth how and when to account for the merchandise inventory. For the chapter overview, video problem, and Connect assignments we are using a perpetual system. The periodic system is explained in Appendix5A.

Once a company selects an overall inventory system--perpetual or periodic--they will select an inventory valuation methodspecific identification, FIFO, LIFO, average cost, etc.

Perpetual Inventory System--in a perpetual inventory system an accountant records ALL inventory transactions at the time that they happen. It helps to think of it this way--inventory is accounted for perpetually or constantly (just as the word implies.)

Periodic Inventory System--in a periodic inventory system an accountant will only account for the inventory at the end of the period or "periodically" (see Appendix 5A in the eBook section of Connect for more information)

The Book Nook

The Book Nook is a well-established chain of 20 bookstores in southern Ohio. In recent years the company has grown rapidly, adding five new stores in regional malls. Management has relied on the manager of each store to place orders keyed to the market in his or her neighborhood, selected from a master list of available titles provided by the central office. Every six months, a physical inventory is taken, and financial statements are prepared using the periodic inventory system. At that time, books that have not sold well are placed on sale or, whenever possible, returned to the publisher. As a result of the company's fast growth, there are many new store managers, who management has found do not have the same ability to judge the market as do managers of the older, established stores. Thus, management is considering a recommendation to implement a perpetual inventory system and carefully monitor sales from the central office.

Discussion Requirements:

Do you think The Book Nook should switch to the perpetual inventory system or stay with the periodic inventory system? Why? Include at least one advantage or disadvantage to support your opinion. To earn full credit you must present a correct and thoughtful opinion.

Then reply to one of your classmates by the end of the week. The reply to a classmate must add substance to the discussion to earn full credit. Replies such as I agree and Good post will not receive credit.