The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.

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In a periodic inventory system, the inventory balance is determined by conducting a physical count. Since the balance sheet reflects the inventory on hand at a specific point in time, the periodic system uses the physical count to determine the value of inventory for the balance sheet. In contrast, a perpetual inventory system tracks the inventory on a continuous basis, so the balance sheet reflects the most up-to-date inventory value without requiring a physical count.

The Periodic Inventory System Relies on a Physical Count of Merchandise